Is it still worthwhile to invest in utilities?
I remember my father telling me that utilities are the only place he'd ever keep his money - "the best dividends" is all he'd used to say. Does that "thesis" (if you can call it that) still hold true for anybody? What do you think?
Answers
3127 points
EthanR answered one year ago …
It is true that utility stocks will still provide you with good dividends. Take Con Edison (ED) for example. The dividend yield is 4.8%. However, in the past year the stock price has gone from$48 to $52.50 to $44, and now back to $48.50. Not exactly stellar performance.
On the other hand, the Proshares Utility ETF, UPW, has gone from $71 to $86 in that same time, and the dividend yield is currently 1.56. $10,000 invested in ED would have netted you about $500 profit in that time, while $10,000 in UPW would have given you a profit of over $2,200, even with a smaller dividend being paid. So you need to be selective as to which utility stocks you are buying. Don't just go for the highest dividend, look at growth as well. Another thing, utility stocks do not tend to perform well during periods of rising interest rates, so a long term buy and hold plan may not work that well. It is possible that your father thought utility stocks were the safest, and that may well be true. It is rare to hear of a utility company going out of business.
