Duke Energy Corp (DUK), The Southern Company (SO), Dominion Resources, Inc. (D): Is Now a Good Time To Buy Utilities?

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Below is a chart of earnings per share for Duke Energy Corp (NYSE:DUK), Dominion Resources, Inc. (NYSE:D) and The Southern Company (NYSE:SO). As you can see, there have been some gyrations over the past several years, but earnings are still at roughly the same level they were five years ago.
If earnings have been stagnant, then why have utilities stocks increased in value? Basically, these stocks are just responding to the high investor demand for yield. The increase is not because the companies are stronger or more profitable than they were before.
As an investor, I am certainly attracted to the dividend yield that these companies offer. However, receiving a 4% yield does not appear to offset the risk of these stocks continuing to fall significantly over the next few months.
If capital continues to rotate out of high dividend stocks and into fixed income assets, utilities stocks could easily drop another 20% to 40% and still be above the valuation levels from a few years ago.
Rather than take advantage of a short-term drop in the utilities sector today, I would prefer to wait until valuations are at historically low levels. Assuming the actual quarterly dividend payments remain the same, waiting for lower valuations would also give me a higher yield on my investment because of a lower purchase price.
Utilities stocks may pay a healthy dividend and be materially less expensive than they were several weeks ago. But there is still too much risk in these stocks for me to justify buying right now.

Zachary Scheidt has no position in any stocks mentioned. The Motley Fool recommends Dominion Resources, Inc. (NYSE:D) and The Southern Company (NYSE:SO).

The article Is Now a Good Time To Buy Utilities? originally appeared on Fool.com.

Zachary is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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