Utilities' Dividends Still Best of Breed
Valuations are rich, but sector finances and growth are super strong.
Although utilities' valuations appear historically rich, the sector's financial health, dividend growth outlook, and relative yield are as good as they have been in decades. Long-term investors searching for secure income that can grow faster than inflation should consider some of these highlighted utilities as long as they're willing to take some risk that the sector will underperform the market in the near term if interest rates start climbing.
The utilities sector's yield paradox is sending mixed messages. On the one hand, the sector appears overvalued, trading at a 13% premium to our fair value estimates, an 18 price/earnings ratio, and a 3.5% dividend yield, which is below the sector's long-term average. However, income investors should like that utilities' average dividend yield still represents a historically attractive 132-basis-point premium to the 10-year U.S. Treasury yield.
Andrew Bischof does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.
Transparency is how we protect the integrity of our work and keep empowering investors to achieve their goals and dreams. And we have unwavering standards for how we keep that integrity intact, from our research and data to our policies on content and your personal data.
We’d like to share more about how we work and what drives our day-to-day business.
We sell different types of products and services to both investment professionals and individual investors. These products and services are usually sold through license agreements or subscriptions. Our investment management business generates asset-based fees, which are calculated as a percentage of assets under management. We also sell both admissions and sponsorship packages for our investment conferences and advertising on our websites and newsletters.
How we use your information depends on the product and service that you use and your relationship with us. We may use it to:
To learn more about how we handle and protect your data, visit our privacy center.
Maintaining independence and editorial freedom is essential to our mission of empowering investor success. We provide a platform for our authors to report on investments fairly, accurately, and from the investor’s point of view. We also respect individual opinions––they represent the unvarnished thinking of our people and exacting analysis of our research processes. Our authors can publish views that we may or may not agree with, but they show their work, distinguish facts from opinions, and make sure their analysis is clear and in no way misleading or deceptive.
To further protect the integrity of our editorial content, we keep a strict separation between our sales teams and authors to remove any pressure or influence on our analyses and research.
Read our editorial policy to learn more about our process.