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.
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
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.
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
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%.”
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.
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.”
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.”
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
facility, pays 4.6%.
Eversource Energy (ES):
Serves four million electricity and natural gas customers in
Connecticut, Massachusetts, and New Hampshire, pays 3.2%.
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 Wisconsin, Illinois, Michiganand Minnesota,
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.