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.

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