Defensive Utility Dividend Stocks Beating The Market In 2017

by Robert Hauver
Is the post-election rally over? Maybe it’s just slowing down, with some investors taking profits, and others adopting a “wait and see” posture, as we head toward next week’s Fed meeting, where it seems more than likely that they’ll raise rates again. There’s also the uncertainty of future policy execution in DC, coupled with the upcoming French and Dutch elections. Suddenly, there’s more for investors to worry about…
In light of this altered landscape, we examined the defensive Utility sector, also well known as having many dividend stocks. It’s represented here by the popular ETF, XLU, which serves as a proxy for the sector on many financial websites.
Even though the S&P has had an impressive gain of 5.69% over the past 3 months, the Utilities ETF has outperformed, rising 8.28%:

Here are XLU’s top 10 holdings – Florida-based Next Era Energy, NEE, is the fund’s largest holding, at 9.45%:

(Source: YahooFinance)
Valuations: This table ranks them by lowest P/E ratio, where electric utility PPL Corp., PPL, leads the pack by a wide margin. It’s interesting to note that PPL is also among the leaders for dividend yield – (see the Dividends table further on in this article for more info).

Performance: The first 4 stocks in this table have outperformed the group average and the S&P 500’s performance year to date in 2017, and also over the past trading month.

As the market has gotten a bit choppier, some Utilities have had more appeal, in spite of the impending advent of rising rates. Edison International, EIX, NEE, and Sempra Energy, SRE, are the 3 top performers in this group so far in 2017, and over the past month.

Dividends: However, those 3 leaders are among the lowest, when ranking by dividend yield. Of course, their yields declined, as their price/share advanced strongly over the past year, from 15% to over 20%.
Note: PPL’s next ex-dividend date is tomorrow, 3/8/17, so we should see it adjust downward for the $.395 quarterly dividend. PPL, NEE, SRE, and EIX have the lowest dividend payout ratios in this group, which speaks to the strength of their earnings, and their conservative cash allocation.

You can track the current prices and dividend yields for several of these stocks in the Utilities section of our High Dividend Stocks By Sectors Tables.

Options: We’ve listed this June call trade for NEE in our free Covered Call Table, which has more details about this and over 25 other call-selling trades. NEE has one $.983 quarterly dividend due during the term of this trade. The June $135.00 call strike has a bid of $2.00, about 2x the amount of the next dividend.

You can also track a June NEE put option trade, in our Cash Secured Puts Table, where we track over 25 other income-producing, put-selling trades.

Price Targets: As income and value investors, we’re always faced with the same conundrum – which do you favor more – dividend stocks with an attractive dividend yield, vs. finding undervalued stocks.
As this table illustrates, these stocks are all either close to or above their consensus price targets right now – analysts upward price revisions haven’t kept up with the price advances of this group. This makes sense, given that higher rates will create higher operating expenses for these capital equipment-heavy companies.

Financials: The relative debt loads for these companies shows that the 4 performance leaders, EIX, NEE, SRE, and PCG, all have Debt/Equity loads which are lower than the average for this group. Even if rates aren’t going to rise to much higher levels, the market is rewarding lower debt loads in this sector.

Disclosure: Author held no shares of any of the stocks mentioned in this article at the time of publishing.
Disclaimer: This article is written for informational purposes only, and isn’t intended as personal investment advice.
Copyright 2017 RH Group Inc. All Rights Reserved

Top Performing Utility Dividend Stocks So Far In 2014

by Robert Hauver
The market has had a bumpy ride so far in 2014, with February turning in the best performance, rising over 4%, after January’s -3.6% pullback. Cap this off with a less than 1% gain for the S&P 500 in March, and you’ve got an unimpressive 1.3% gain for the first quarter:
SP-4-9-14
With this kind of up and down ride, you’d want to find some dividend stocks which offer defense, in addition to income. With the pullback in many biotech stocks, the Healthcare sector no longer leads,(although it’s still up nearly 5%), but has given way to the Utilities sector, which is up over 10% year-to-date.
Here’s a look at the chart for the Utilities ETF, XLU:
XLU-2014-04-08
We looked further into XLU’s top holdings, and came up with these top 5 utility stocks, all of which are large cap dividend paying stocks. Another common feature is that they all have somewhat lower forward P/E’s, meaning that their earnings should improve in their next fiscal year. Duke, DUK, and Southern, SO, have the lowest P/E’s, relative to their 5-year P/E ranges:
UTIL-PE
This is how they’ve performed year-to-date, and over the past month, and over the past 52 weeks. Nuclear-based Excelon, EXC, has outperformed the pack year-to-date, and over the past month, but is still up only 3.62% over the past year. Contrasting with that performance is more steady Next Era Energy, NEE, which has made over half of its 1-year 25.90% gains, by rising 13.61% in 2014:
UTIL-PERF
Dividends: With their 4%-plus dividend yields, Southern CO., SO, and DUK, are both listed in the Utilities section of our High Dividend Stocks By Sector Tables. Although their yields are lower, Dominion, D, and NEE, have the best 5-year dividend growth rates:
UTIL-DIV
Options: If you want to add more downside protection to these stocks, selling covered calls offers you more immediate income, and a lower breakeven. NEE has the most attractive call options of the group. This June $97.50 call pays $2.60, over 3 times NEE’s next quarterly dividend. (Our free Covered Calls Table has more info on this and over 30 other trades.)
UTIL-NEE-CALL
Here are the major income scenarios for this trade. The $97.50 strike price is $1.07 above NEE’s price/share, which amply rewards you if your shares get assigned prior to the ex-dividend date for the $.73 dividend:
UTIL-NEE-CALLINC
Selling cash secured put options is another way to profit from these defensive stocks. In fact, if you sell puts below the stock’s share price, you’ll get an even lower breakeven, and improve upon their defensive nature. This is another June trade, but this put has a $95.00 strike price, and a $92.05 breakeven, which is 4.5% below NEE’s price/share. You won’t receive any dividends, but, just like selling calls, you’ll be paid your option premium within 3 days of the trade, often sooner. You can find more info about this and over 30 other trades in our Cash Secured Puts Table.
UTIL-NEE-PUT
Financials: It’s a mixed bag, Dominion and Next Era have an edge over the rest of the group for some of these metrics, but they do carry more debt:
UTIL-ROE
Valuations: Excelon has the lowest valuations for these metrics:
UTIL-PB
Disclosure: Author was long shares of Southern, SO, at the time of this writing.
Disclaimer: This article was written for informational purposes only. Author not responsible for any errors, omissions, or actions taken by third parties as a result of reading this article.
Copyright DeMar Marketing 2014. All rights reserved.

2 Top Defensive Dividend Stocks

by Robert Hauver

October 12, 2012

With many market observers wondering how long the summer/fall rally will last, we went looking for dividend paying stocks that outperformed the market during the spring pullback AND have also participated in this rally.  Not surprisingly, we came up with 2 Utilities stocks, American Electric Power, (AEP), and Next Era Energy, (NEE). Next Era, based in Florida, was formerly known as FPL, (Florida Power & Light).

Both of these stocks are listed in the Utilities section of our High Dividend Stocks By Sector Tables.

Here’s how these 2 electric utilities stocks have performed as of 10/11/12, in both up and down markets. NEE did the best during the pullback, actually rising 4.69%, while AEP only fell -1.18%, while the S&P fell nearly 10%.  AEP has reversed itself during the rally, rising over 14%, while NEE has risen 7.57% to date. As the table below shows, they both have risen double-digits on a Pullback vs. Rally net basis, while the S&P has risen just over 2% during the 2 periods:

Dividends: Both stocks pay quarterly dividends, and have increased them over the past 5 years. AEP’s dividend has grown from $.41 in 2007 to the current $.47 quarterly rate, while NEE has done much better, climbing from $.41 all the way up to $.60, a nearly 33% dividend growth rate:

Earnings Growth: As with most Utilities stocks, these aren’t big growth stories, since much of their earnings is regulated, but both firms are at least showing some growth for the past and future, although NEE’s EPS stumbled -3.14% in 2011:

Financials: Both firms have superior Management Efficiency Ratios and Operating Margins vs. their industry. They both carry a higher debt load than the Industry average, but they also have higher Interest Coverage Ratios:

 

Disclosure:  Author held no AEP or NEE shares at the time of this writing.

 

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

 

Author: Robert Hauver © 2012 Demar Marketing All Rights Reserved


3 High Dividend Stocks Bucking The Spring Pullback

By Robert Hauver

The S&P 500 has pulled back approx. 4% since its early April highs, which begs the question, are there any dividend paying stocks that have beaten the market since then?  We took 3 dividend stocks from our High Dividend Stocks By Sector tables, and researched how they’ve done in all of the various rallies and pullbacks since last summer.

These 3 stocks have all held up better than the market in pullbacks, and have also participated in rallies.  Not surprisingly, these defensive dividend stocks hail from the Healthcare and Utilities sectors: NextEra Energy, (NEE), Xcel Energy, (XEL), and Eli Lilly Co., (LLY):

LLY-NEE-PERF-LONG

Click here to read more…

Disclosure: Author had no positions in any of the above stocks at the time of this writing.

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

Author: Robert Hauver © 2012 Demar Marketing All Rights Reserved