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Time for Boring Utilities

Is the market getting to look a little too frothy to you? If so, maybe it’s time to consider something really boring like utility stocks.

Actually, there’s a lot to like about utilities. For starters, many are paying dividends equating to 3% or higher yields compared to the 1% or so that banks are still paying these days.

If the market does correct, you’ll still be collecting quarterly dividends while you wait for the market to turn back up. Although utility share prices typically drop with the market during a downturn, they usually recover when the market revives.

October 2016 Screen

A little over a year-ago (October 14, 2016), I described a strategy for pinpointing worthwhile utility stock candidates. When I checked, the four utilities that I highlighted in that column had averaged a 24% return, edging out the S&P 500’s 21% over the same timeframe.

2017 Version

Encouraged by those results, I’ve produced a new list of utilities for this column. It uses the same selection strategy as last year, except for a couple of tweaks inspired by recent research results.

As usual, I’ll use the free and user-friendly Finviz (finviz.com) stock screener to find worthwhile candidates. Start by selecting Screener on the Finviz home page, and then, on the Filters bar, click “All” to see the available screening filters. For each filter that you use, click on the associated dropdown menu to select a search value. 

Define Search Universe

Start by limiting your list to U.S.-based utilities by using the “Sector” dropdown menu to select “Utilities” and the “Country” filter to select “USA.”

Then, rule out the smaller and, hence, more volatile players by selecting “Large ($10 billion to $200 billion)” for Market Capitalization,” which is the value of all outstanding shares.

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

Work Smarter

Then, following the “work smarter, not harder” philosophy,  use the “Institutional Ownership” menu to specify “Over 40%” to limit your list to utilities favored by mutual funds and other “in the know” players.

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

Moving Average: Minimize Losses

Finally, because resent research has found that stocks trading above their 200 day moving averages (average closing price) outperform those that don’t, especially in weak markets, use the “200-Day Simple Moving Average” filter and specify “Price above SMA.”

Utilities Screen Results

My screen turned up four utilities. Click here to see which utilities the screen is turning up today.

American Electric Power Company (ticker symbol AEP), serves electricity customers in 11 states. Its dividend yield is 3.4%.

Exelon (EXC), serves electricy customers in Illinois, Pennsylvania, Delaware, and Maryland, and natural gas customers in Delaware, New Jersey, Maryland. Yield: 3.3%.

Public Service Enterprise Group (PEG), serves electricity and natural gas customers in Northeastern and Mid-Atlantic states. Yield: 3.4%.

WEC Energy Group (WEC) serves electricity and natural gas customers inWisconsin, Illinois, and Michigan. Yield 3.1%.

As always, consider these utilities to be research candidates, not a buy list. The more you know about your stocks, the better your results.

published 11/21/17

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