The Utilities sector is rarely noted for its growth, but that's changed in the last year. For the first time in 11 years, utilities stocks have posted the biggest gains on the S&P 500. The appeal of the major utilities stocks may be connected to their relative stability. In these volatile times, the consistency of shares in a defensive sector can be appealing. Combine with that the addition of strong dividends for many of these stocks and it's not hard to see why investors have been flocking to this sector all year.
Utilizing Big Dividends
The major players in the utilities sector have long offered some of the better dividend yields available. However, this last year offered up a second bonus for these stocks: double-digit growth. The S&P Utilities Sector Index is up 11 percent on the year, at least 3.8 percent more than any other similar sector index. Several utilities companies have seen their share value increase by at least 10 percent or more this year while still offering dividend yields of close to or above 5 percent.
Duke Energy Corp. (DUK)
Duke Energy is an American company that generates and sells electricity primarily to western North Carolina, western South Carolina, southwestern Ohio, central, north central and southern Indiana, and northern Kentucky. Duke has long been one of the major players in the sector, with a market cap of over $27 billion. Duke has offered a dividend since 1987, and the current yield is 4.84 percent. This sort of return alone should make the stock attractive, but Duke has also posted a 14 percent gain in share value year-to-date. At about $20.30 a share, the stock is hovering near its 52-week high of $21.02.
FirstEnergy Corp. (FE)
FirstEnergy is a holding company for eight principal electric utilities in Ohio, Pennsylvania, and New Jersey. The company is also one of the larger dedicated utility companies in the world with a market cap of almost $19 billion. On the year, FirstEnergy has increased its stock by nearly 22 percent while offering a dividend yield of 4.83 percent.
Ameren Corporation (AEE)
Ameren Corporation is a Missouri-based utilities holding company that services areas in Illinois and Missouri through several subsidiaries. Ameren shares have gained 15 percent this year, pushing to a 52-week high in early November. Ameren also offers an attractive dividend yield of 4.9 percent, giving investors a chance for growth along with an immediate return.
Brookfield Infrastructure Partners L.P. (BIP)
While Brookfield Infrastructure is a global company with a variety of infrastructure assets, its primary focus is on ownership and operations of utilities in Australia, Chile, New Zealand, Europe, and Canada. Brookfield, with a market cap of just under $3 billion, has grown its stock over 23 percent this year while still offering a solid dividend yield of 5.34 percent.
Vectren Corporation (VVC)
Incorporated in 1999, Vectren is an energy holding company that serves customers in Indiana and Ohio through its subsidiaries. So far this year, Vectren's stock is up over 15 percent while the company offers a dividend yield of 4.77 percent.
Gravy Train Coming to an End?
The growth in the utility sector could be a sign of investors fleeing the volatility of the markets for the relative calm and safety and consistent dividends of a defensive sector like utilities. While this has meant solid gains in share value in the short term, the long term prospects for the industry may not be as bright. Utilities is one of the only sectors that analysts expect to see profits contract, with projections that earnings will drop 1.6 percent in 2012, and if the markets begin to stabilize investors may choose to flee utilities for investments with better prospects.
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