Beating The S&P With Defensive Dividend Stocks

By Robert Hauver

This summer has been a stormy season for stocks, with volatility surging and triple-digit price swings becoming all too common. Finding winners has been a difficult task, with only a  few market components holding up well, most notably solid Utilities dividend paying stocks. The Utilities sector is the sector leader year to date, and has also outperformed the S&P consistently this year. Institutional buyers have increased their holdings over the past quarter, using these low beta stocks to defend their portfolios:

CPK-SO-PERF

The 3 dividend stocks listed above operate in various segments of the utilities business:

Chesapeake Energy (CPK) is a diversified utility, operating in Delaware, Maryland, and Florida, with operations in natural gas, propane, and electric distribution, and natural gas transmission and marketing. CPK has over 200,000 customers.

York Water (YORW),  founded in 1816, is the nation’s oldest investor-owned utility. YORW operates in 33 municipal areas in PA, and is a regulated utility.

Southern Co. (SO) is a regulated electric utility firm based in Atlanta, and is one of the largest US utilities, serving customers in Alabama, Florida, Georgia, Mississippi, and the Carolinas. SO is also involved in nuclear energy, via its subsidiary Southern Nuclear, and has three nuclear generating plants in Alabama and Georgia.  SO also owns SouthernLINC Wireless, a 127,000 square-mile communications network in the Southeast; and Southern Telecom, a wholesaler of fiber optics  in the Southeast.

Dividends :

CPK-SO-YORW-DIVS

Southern Co. is listed in our High Dividend Stocks By Sectors Table, and has the highest dividend yield of this group.

Covered Calls :

Only Southern Co. has options available, and is listed in our Covered Calls Table, along with many other covered calls trades.

A Jan. 2012 $41.00 Covered Call trade currently offers a  14% plus yield, with the call option bid premium paying over 3 times the dividend amount for this 5-month term:

SO-CALLS-8-25-11

Cash Secured Puts :

Selling a Jan. 2012 $40.00 cash secured put, below SO’s current price, would net you a $1.94 premium, and a $38.06 breakeven, only about 11% above SO’s 52-week low.

This SO put trade is listed in our Cash Secured Puts Table, along with many other cash secured put option trades.

SO-PUTS-8-25-11

Financials:

CPK-SO-ROE

Although their ROE ratios are below the sector average, investors have continued to buy these uitility dividend stocks in this turbulent market, due to their defensive nature and dividend yields.

Valuations/EPS Data:

CPK=YORW-SO-EPS

Although utility stocks aren’t normally known for outstanding growth, these firms have all achieved EPS and sales growth in the most recent fiscal year and quarter, but appear to have slower growth prospects for their next fiscal year.

Disclosure: No positions at the time of this writing.

Disclaimer: This article isn’t intended as individual investment advice, and is written for informational purposes only.

© 2011 DeMar Marketing