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Boring Utilities: Rx for this Scary Market?

What’s still working in this scary market? Boring utilities! I’m not kidding. Here are the numbers.

Year to date, the overall market, at least as measured by the S&P 500 Index, is down around 1%. But most ETFs that track utilities are up around 6% to 7%.

Even over the past month, when the S&P crashed 9%, utilities as a group gained around 2% to 3%.

How do you play utilities?

The easiest way is via ETFs. If you want to take that route, Invesco S&P 500 Equal Weight Utilities (RYU), and JHancock Multifactor Utilities (JHMU), both up around 8%, have done the best so far this year.

Picking Individual Stocks: Better Returns?

However, for more adventurous investors, I’m going to describe a screen for finding utility stocks that could produce even better returns. It’s based on a screening strategy I described about a year-ago, on November 10, 2017, to be specific.

Assuming that you bought equal dollar amounts of all four on 11/10/17 and sold on 10/29/18, your portfolio would have returned 8% (capital appreciation plus dividends) compared to 4% for the S&P.

The screen I’m going to describe today is similar to last year’s screen, except I added some tweaks to accommodate current market conditions.

This Year's Utility Screen

As usual, I’ll describe the process using the free Finviz (finviz.com) stock screener. Start by selecting Screener on the Finviz home page. Then click “All” on the Filters bar to see the available screening filters. For each filter that you use, click on the associated dropdown menu to select a search value. 

Define Screen Universe

To begin, limit your list to U.S.-based utilities by using the “Sector” dropdown menu to select “Utilities” and the “Country” filter to select “USA.”

Then, use the “Dividend Yield” filter and specify a “Over 3%.”  

Avoid Riskiest Plays

Rule out the smaller and, hence, more volatile players by selecting “+Large (over $10 billion)” for Market Capitalization, which is the value of all outstanding shares, and “over $50” for (recent share) price.  

Work Smarter

Next, rather than scrutinizing financial statements on your own,  use the “Institutional Ownership” menu to specify “Over 70%” to limit your list to  utilities favored by mutual funds and other “wired-in” players.

Along those same lines, piggyback on the efforts of stock analysts by requiring “Buy or better” for average “Analyst Recommendation.”  

Stick With Strongest Stocks

Finally, we want to isolate the strongest players based on share price action. You can do that by requiring that passing stocks are trading above their moving averages (average closing price) for appropriate timeframes. For recent market action, use the “20-Day Simple Moving Average” and for a longer-term perspective, use the “200-Day Simple Moving Average.” For both, specify “Price above SMA.”

The Winners Are:

My screen turned up seven utilities paying dividends equating to 3.2% to 4.6% yields.

American Electric Power (AEP): The U.S’ largest electric utility, serves 5.4 million customers in 11 states, pays 3.6%.

Dominion Energy (D): Serves electric and natural gas customers in Virginai, North Carolina and Ohio. Also operates natural gas pipelines and a natural gas liquefaction facility, pays 4.6%.

Eversource Energy (ES): Serves four million electricity and natural gas customers in Connecticut, Massachusetts, and New Hampshire, pays 3.2%.

Entergy (ETR): delivers electricity to 2.9 million utility customers in Arkansas, Louisiana, Mississippi, and Texas, pays 4.2%.

Evergy (EVRG): Serves 1.6 million customers in Kansas and Missouri, pays 3.3%.

Public Service Enterprise Group (PEG): Serves electricity and natural gas customers in the Northeastern and Mid-Atlantic states, pays 3.2%.

WEC Energy Group (WEC):4.5 million customers in WisconsinIllinoisMichiganand Minnesota, pays 3.2%.

As always, consider these utilities to be research candidates, not a buy list. Past performance doesn't necessarily translate to future profits. The more you know about your stocks, the better your results.  

published 10/30/18

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