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3 Dividend-Yielding Utility Stocks to Buy in 2018

Zacks

Perennial demand for electricity and utility services has made the Utility Sector a safe haven for investors. Consistent demand enables a smooth flow of cash to utility operators. They in turn use this cash to reward shareholders by paying stable dividends.

In fact, for income investors, this sector has always been a lucrative one with utility stocks generating strong dividend yields. As we near the end of 2017, it seems to be a good time for investors to review the prospects of utility stocks and accordingly reshuffle their portfolios.

Rising Prices Boost Growth Prospects

In a recent release, the U.S. Energy Information Administration predicted that the annual average U.S. residential electricity price will increase 3.4% in 2017 and 3.2% in 2018. This will surely benefit electric utility operators. Electricity prices are also projected to increase in commercial and industrial sector. Undoubtedly, such price increases will boost earnings of the utilities and enhance dividend payouts.


Regular Dividends: A Major Positive

A major positive for utility stocks has been their regular dividend payout strategy. Even during times of recession, households and communities still need power, water, heat and telecommunications. This was evident during the economic crisis of 2008-2009, when utilities continued to pay dividends uninterruptedly.

We have a long list of companies that are sharing profits consistently with shareholders. Notable among them are CenterPoint Energy CNP and Duke Energy Corp. DUK, which have raised dividend rates annually for more than 10 years now.

Trump Administration: A Boon

Stringent regulations implemented by President Obama prompted utilities to take steps to lower emission levels. Although for environmental protection Clean Power Plan was an apt decision, it was putting pressures on utilities. President Trump’s repeal of these stipulations on economic growth grounds are expected to give a new lease of life to utilities that produce a major part of their electricity from coal. After all, Coal still accounts for nearly 30% of the electricity produced in the United States.

Trump’s promises to deregulate the sector and remove environmental hurdles will be beneficial for utilities. Fewer regulations will help to lower operating costs and increase the lives of power production facilities.

Key Bets

Utility operators are currently undergoing a transition as the primary fuel source, coal, is gradually being replaced by natural gas and other alternative energy resources like solar power as is evident from increased usage of clean energy to produce electricity.

May be realizing that fact that our ultimate future lies in renewable resources, large utilities like NextEra Energy NEE and Duke Energy continue to take initiatives to produce electricity from natural gas and alternative sources, even when Trump is against the Clean Power Plan.

With only a month or so remaining before we step into 2018, let’s take a look at the utility stocks which continued with their dividend payout strategy amidst this transition.

With the help of our Zacks Stock Screener, we have narrowed down our search to the following utility stocks each of which has a Zacks Rank #2 (Buy) and a dividend yield of more than 3%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

First on our list is Deutsche Telekom AG DTEGY, which provides telecommunications services. The company currently boasts a dividend yield of 3.70.

Next is Consolidated Edison Inc. ED, a diversified utility holding company with subsidiaries engaged in both regulated and unregulated businesses. The company currently boasts a dividend yield of 3.15.

WEC Energy Group, Inc. WEC is another valuable stock. It is a diversified holding company, engaged in the generation and distribution of electricity. The company currently boasts a dividend yield of 3.02.

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Zacks Investment Research
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