Displaying items by tag: utilities
Dividends have had a tough year. Because of the pandemic, many companies have had to cut their dividends in the face of losses or declining profitability. Even some who have maintained or raised dividends cannot really afford to do so. Therefore stable, rising dividends with healthy underlying companies are very prized right now. Here are some good names to look at: Whirlpool, Avery Dennison, American Electric Power, and Crown Castle International. All four have recently raised their dividends on the back of robust business. Whirlpool, a major appliance manufacturer seems to be riding the home improvement wave, while Avery Dennison, which makes packaging, is likely benefitting from ecommerce gains. The others (a utility and a cell tower company) have inherently durable businesses.
FINSUM: Cell towers, utilities, and packaging materials seem like very strong areas even if the pandemic gets worse this winter, and there is almost zero rate risk at present.
Dividend stocks are a scary space right now. Not only are earnings likely to be very volatile, but companies have announced major dividend cuts and the suspension of buyback programs. With that in mind, here are some stocks that offer safe and rewarding dividends. Regulated utilities are a great place to turn because they have government-allowed profit margins and are very recession-resistant. Check out American Electric Power (3.3% yield), Dominion Energy (4.6%), FirstEnergy (3.5%), NextEra Energy (2.3%).
FINSUM: These seem like great bets. They are down a little since the COVID explosion, which has boosted yields, but utilities are generally great recession stocks.
Utilities just hit a new high. So what else is new. Utility stocks have been surging this year alongside falling rates, and they are not the only ones. Consumer staples, consumer discretionary and even tech have been rising strongly. Not only do the dividends look appealing, but the stable earnings profile is attractive given the threat of a downturn. What is most impressive is that utilities have held up even though value has been surging. According to Goldman Sachs “With the Fed cutting rates again this week and the 10-year yield at 1.78% [now 1.71%], utilities continue to perform well, despite NT headwinds as broader momentum trades reversed slightly”.
FINSUM: As long as there is downward pressure on rates, we suspect dividend stocks will be strong. But it wouldn’t take much to reverse that.
There are a handful of safe haven stock sectors that investors tend to rely on during market downturns. Healthcare, utilities, and REITs come to mind. Lately, some have been saying bank shares may also prove a good defense. However, investors should be very wary of two of those just mentioned: healthcare and banks. While on the surface healthcare stocks look very good for a recession—it is not as if people stop getting sick—the reality is that there has never been more regulatory pressure on the sector (from both sides of the aisle), which means it is far from safe. Additionally, the idea that banks have become safe, utility-like dividend machines is flawed, as bank earnings are very exposed to the economic cycle, and thus will likely see big moves in both price and yield.
FINSUM: We agree with this assessment entirely. Healthcare is more vulnerable than it has been in memory and banks are a long way from being dependable utilities (excellent PR job by Wall Street though!).
Low volatility stocks have been the hero of the volatility over the last year. In the past 12 months, the S&P 500 has returned 3.2%. That compares to a whopping 14% plus for low volatility stocks, such as in the S&P 500 low-vol index. By definition, low volatility stocks are boring (think utilities, insurance, and REITs) and have stable earnings. That works well for defending against market swings, but the protection means that valuations are WAY above their long-term average (three standard deviations above). That said, falling rates are very helpful to this class of stocks, so there is wind at their backs.
FINSUM: Despite quite high valuations, we think low vol stocks will continue to do well so long as the trade war continues to plague markets.