Lately Utility stocks have been declining. I thought Utility stocks like ED, DUK and SO we’re safe places to go during a recession. They have great dividend payouts and folks still need electricity. I understand that their costs to generate electricity is going up but don’t they just pass it on to the customer? Just curious since I’m thinking of grabbing some for the consistent dividends and safe place to put some cash.
Rising interest rates push utilities down. They are so heavily regulated that profit is nearly fixed, and sales is pretty close to flat.
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Yep. And they trail in profitability when costs are ramping up.Originally Posted by CatFan
They're allowed rate increases ONLY after incurring losses.
IMO, utilities are good dividend stocks, they're stable bets.
High beta.
Utilities have been very overvalued recently. They normally trade around a 15 PE and many of them were trading north of 20. These are typically not growth stocks so a lower PE would be warranted. Also they are very capital intensive industries and they have to invest alot in their equipment and power infrastructure. This often requires higher debt levels and as rates rise that debt become more expensive. Finally, although utility stocks are normally stable, it is hard for them to compete against a risk free yield that may be close to what they pay in dividends. I own DUK and NEE and don't plan on selling them but I am not surprised they are getting hit.
Ok, thanks. I guess I will hold off until they go lower then. Was just looking for some good sale prices on dividend payers and noticed the Utilities getting hit.
I got AEP on my shopping list. And if NEE falls alot I may add to that also.
I noticed NEE is in many Mutual Funds and energy ETFs.
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