Utilities are your classic slow-and-steady stocks. Since they operate in a highly regulated industry that is critical to our national security, the majority of publicly traded utilities represent just about the safest stocks you can buy.
Utilities are known for dependable profits and making quarterly dividend payments like clockwork. Investors own them much more for income purposes than capital gain potential. At the same time, utility stocks are still stocks nonetheless, and investors carry the risk of taking an equity stake in a utility company. In recent months, we’ve seen some divergences occur among the utilities. In that vein, here are two utilities you can buy today, and one to stay away from.
Dependable sources of income
Utilities like The Southern Company (NYSE:SO) and American Electric Power Company Inc (NYSE:AEP) are highly valued by investors for their ability to pay dividends year in and year out, regardless of how the economy is doing.
Even when the economy goes into a recession and the stock market plunges, consumers will keep the power on, and as a result utility stocks tend to hold up. And, since utilities manage to pass on rate increases on a regular basis, many utilities have actually increased their dividends for many years in a row.
To illustrate, consider that The Southern Company (NYSE:SO) has paid dividends for 263 consecutive quarters—dating back to 1948. Moreover, the company has actually managed to increase its shareholder distribution for 12 years in a row.
American Electric Power Company Inc (NYSE:AEP) has a proud dividend history itself. American Electric Power Company Inc (NYSE:AEP) has paid a cash dividend on its common stock every quarter since 1910. Even better, American Electric Power Company Inc (NYSE:AEP) very recently increased its dividend by more than 4%.
This utility is falling behind
Bucking the trend of reliable dividends from utility stocks was Exelon Corporation (NYSE:EXC), when it cut its dividend earlier this year. As previously mentioned, utilities are overwhelmingly bought and owned for their fat dividend yields. A utility that cuts its dividend is failing at the biggest reason for owning it, and as a result, will see its stock drop in tandem.
That’s exactly what happened to Exelon Corporation (NYSE:EXC), which had traded well above $40 per share for much of the past several years, after it slashed its dividend by 41%. The stock price followed suit, collapsing to its current level around $30 per share.