Need Income? Interest Rates Too Low? Try Utilities!

By Aryeh Katz | May 12, 2009 AAA

When markets are rough, utilities are some of the safest places to invest. Handsome income streams to shareholders aside, utilities are essentially recession proof. Keeping lights on, telephones working and houses warm in winter and cool in summer are services with which consumers generally do not wish to part with. Therefore, revenue streams are all but guaranteed - barring natural disasters - and the resultant stock price fluctuations are predictably small.

During these times of extraordinarily low interest rates, utility stocks also fill a void by providing income opportunities for pensioners and others who rely on regular, safe dividends to live on. Here are a few utilities worth your attention:

Strong Fundamentals In Utilities
NiSource
(NYSE:NI) provides electricity and natural gas services to 3.8 million customers in the South, Midwest and Atlantic states.The stock yields 8.07% (as of May 8) and has appreciated in value by nearly 50% in the last two months alone, rising from a 52-week low of $7.79 to $11.40 recently.

Equally compelling are the company's fundamentals. NiSource trades for an extraordinarily low book value of 66 cents and has a price/earnings multiple of only 9.26. These metrics point to bargain values that would make even Graham and Dodd salivate. In addition, recent earnings results beat Wall Street estimates. Its adjusted net income came in at 62 cents per share, 10 cents above the 51 cents that analysts were expecting.

EDE Following Suit
Empire District Electric
(NYSE:EDE) has a set of fundamentals no less impressive than rival NiSource. EDE pays shareholders an 8.39% dividend yield and trades at 98 cents of book value. The P/E is 13.03 and investors in EDE have seen a whopping 25% return from 52-week lows.

EDE is an electricity company operating in Missouri, Kansas, Oklahoma and Arkansas with a market cap of just over $500 million.

Pepco An Attractive Play
No less exciting an opportunity can be found in Pepco Holdings (NYSE:POM), an electricity and natural gas operation that has stakes in the Mid-Atlantic region. Not to be outdone by its competitors, the company's stock has risen an impressive 25% since its lows in March; it closed at $12.66 on May 8.

The dividend yield is 8.53% and the P/E multiple is 10.46. The price/book ratio is a very attractive 0.66. For what it's worth, investing gurus David Dreman (of Forbes Magazine fame) and John Hussman have purchased shares of POM in recent months.


The Wrap
If you're looking for steady income opportunities with solid payment records and less volatility in shaky markets, you'd do well to consider the above-mentioned companies. With Treasuries paying so little, it behooves investors to examine utilities as a reasonable and safe alternative. (For an alternate viewpoint, read our related article Dividend Still Looks Good After All These Years.)

Related Analysis
  1. When To Buy Strongly Performing Stocks
    Chart Advisor

    When To Buy Strongly Performing Stocks

  2. The ADX Shows Strong Uptrends In These 4 Stocks
    Chart Advisor

    The ADX Shows Strong Uptrends In These 4 Stocks

  3. Downward Trend Channels for the Market Correction
    Chart Advisor

    Downward Trend Channels for the Market Correction

  4. Oil, Oil Stocks: What The Charts Are Saying
    Chart Advisor

    Oil, Oil Stocks: What The Charts Are Saying

  5. Stocks Breaking Below Head and Shoulders Patterns
    Chart Advisor

    Stocks Breaking Below Head and Shoulders Patterns

Trading Center