The Fed’s latest decision in September 2015 to again stand pat on whether to raise interest rates has at least some investors happy. Holders of utilities stocks are seeing their shares rise as expectations reset for continued low cost capital to this sector.
Anyone searching for income in this market has of course been frustrated by the low yields offered by government bonds, money market funds, and savings and time deposits. Yields for these securities remain close to zero percent on investment. Conservative investors dislike the risks generally posed by stocks and by long term bonds, which can be subject to volatility like we experienced in August.
Just staying in cash may be tempting, but is often unrealistic unless the investor opts in to draw down his or her balance over a period of years. There is a way, however, for conservative investors to put their money back to work.
Anyone who has lost patience with zero returns for yield may find an attractive alternative in shares of selected U.S. public utilities. Companies providing natural gas, electricity, and water to residential and commercial customers are supplying life’s necessities. Utility companies can exhibit more consistent revenues and profits than do companies exposed to the wider swings of today’s economic cycles. Most consumers will pay their utility bills before they use funds for other bill payments. Utilities can benefit as the population grows, as rate increases are imposed, and as service areas expand.
At present, dividends in the public utility market range from three to over five percent per year! The dividends, although never guaranteed, are usually consistent. In choosing among these stocks, investors should favor those companies that pay steady dividends or that increase dividends over time. In this way, long-term investors buy a hedge against future inflation.