Ever since the Great Recession, the Federal Reserve has kept interest rates artificially low. So low that investors who typically invest in bonds for the interest income they provide have had to look elsewhere. Unfortunately, there weren’t many places to look. As a result, most investors turned to blue chip companies that were a relatively safe investment and paid a nice dividend. Enter utility stocks.
But not all utility stocks are equal. If you are looking for a safe place to park your money while earning a nice dividend, you have some research to do. Luckily that is where this post enters. There are 3 utility stocks out there that are a good place to put your money and they will pay you to own them through healthy dividend payments.
Understand that since these are stocks, you can lose money when the market drops. But they are solid companies and should not be as volatile as the market as a whole. And since they have had a pullback recently, now could be the time to get in. So what are these 3 utility stocks?
3 Utility Stocks That Pay You
#1. Southern Company (NYSE: SO)
Southern Company was on a tear in 2016, rising close to 10%. Even so, the stocks PE ratio is only 18 which leaves plenty of room for growth. While you cannot expect the stock to continue to return 10% annually, there is no reason why it won’t continue to rise, albeit at a slower pace.
The reasons for continued stock appreciation include capital reinvestments in both new acquisitions and construction. In fact, the company is planning on spending close to $10 billion in acquisitions, which will certainly help drive growth.
When it comes to the dividend, Southern Company is currently yielding 4.6% and the payout ratio sits at 83%. Many analysts are expecting Southern to raise its dividend in 2017, making it even more enticing to investors.
#2. Entergy (NYSE: ENT)
Entergy has suffered from bad news recently. First, its proposed deal with ITC Holdings fell apart. Now there is news with the company shutting down its Indian Point power plant early. As a result, investors have shied away from the stock and it is reflected in its PE ratio of 10.
But all hope is not lost with Entergy. Gas prices are slowly starting to rise which will help Entergy out and they are adding new customers in all segments – residential, business and government – which will also benefit the bottom line. The company increased its guidance for full year earnings back in October, so it will be interesting to see how it fares when earnings are released on February 15th.
Entergy is paying a healthy dividend currently, with its yield sitting at 4.9%. The stock is down 12% from its high last summer as the bad news has had an impact on the stock price. As a result, this could be a good entry point to get a utility stock that pays a healthy dividend and is slowly growing.
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#3. PPL Corporation (NYSE: PPL)
PPL currently trades at $35.50 a share and has a PE ratio of 13. If you look at a long range chart of the company’s stock performance you will see that after the market collapse of 2007, PPL stock has been on a slow, methodical climb.
And PPL has room to grow. They are committed to investing $16 billion in improving their infrastructure and making their electric grid more reliable and efficient. This includes working with solar companies to develop an industrial scaled battery storage facility.
As with Entergy above, PPL has faced a pull back in its stock price as well and is down 10% from its 2016 high. The company is currently paying a nice dividend and has announced an increase of close to 4%. This brings its yield to 4.6% making it a nice utility stock to buy and hold long term.
There is a lot of potential upside when it comes to investing in utility stocks. With President Trump talking about deregulation in the industry as well as a push for more nuclear power, these utilities could continue to gain ground in the coming years.
The downside however is rising interest rates. As the Federal Reserve increases rates throughout 2017, utility stocks could be affected as investors move back to bonds. But, the Fed already made clear its intent for interest rates this year and the market could be pricing the rise in already.
Additionally, it will be some time before interest rise enough to compete with the dividends that these utilities are paying. So for now and over the long term, investing in utility stocks for their healthy dividends is a wise move.