In a quiet week, one of the main topics of interest was the Dow Utilities' 4-percent drop in the last two trading days, following a huge rally in the middle of the month. It was still the best-performing of the major indices, up 28 percent for 2014. All this occurred without a bond market rally.
What's up? The drop in the last couple days can safely be chalked up to profit taking, but the huge run-up in 2014 is a little harder to explain. There has clearly been an expanded class of investors in utilities.
If you believe rates are going up in 2015, why would you buy utilities? Because you can still get EPS growth of 5 percent or more and consistent, low-risk yields of roughly 3 to 4 percent. Despite the huge price run-ups, the dividend yields remain attractive on a comparative basis.
Utility dividend yields:
- Southern: 4.2 percent
- PPL Corp: 4.1 percent
- Duke Energy: 3.8 percent
- Consolidated Edison: 3.8 percent
Low natural gas and coal prices are also a help. Roughly 40 percent of power generation now comes from natural gas, up from 28 percent a few years ago.