In the recent low-yield environment, utility stocks have remained popular among the income seeking investors due to their attractive dividend yields. Lately, however, fear of the Fed tapering quantity easing has pushed yields up, causing utility stocks to underperform against the broad market. As the Fed tapering is linked to positive economic data, I believe that monetary easing will be prolonged for a longer period of time than currently signaled by the Fed and anticipated by the markets. Therefore, high-dividend stocks will remain attractive among income investors.
In the utility sector, I believe that Duke Energy Corp (NYSE:DUK) is among the most consistent and reliable of companies. Duke Energy Corp (NYSE:DUK) has delivered healthy financial performance in the past and is expected to maintain its momentum in the future as well. The company offers a high dividend yield of 4.7%, making it an attractive stock for investors’ income portfolios. Duke Energy Corp (NYSE:DUK) has a rich dividend history, evident by the fact that it has paid quarterly dividends consistently over last 87 years. Dividends have been growing in line with the earnings growth. A target payout ratio of 65% to 70% has been set by Duke Energy Corp (NYSE:DUK) under its long-term plans.
Given Duke Energy Corp (NYSE:DUK)’s strong operating cash flow yield of 11.5%, I believe dividends offered by the company are safe and sustainable. Moreover, Duke Energy Corp (NYSE:DUK) holds a healthy balance sheet and has been assigned an investment-grade credit rating by various rating agencies. Fitch and S&P, for instance, have both assigned BBB+ ratings to Duke. The following chart shows the annual dividend for Duke from 2010 up till 2013.
Source: Duke Energy
Other utility stocks
American Electric Power Company Inc (NYSE:AEP) is another stock that I recommend for income-seeking investors. American Electric Power Company Inc (NYSE:AEP) serves more than 5 million retail customers in 11 states and has a generational capacity of more than 38,000 megawatts. The company offers a safe and high dividend yield of 4.5% which is backed by its operating cash flow yield of 17%. The company has increased its quarterly dividends consistently, increasing them from $0.35 in 2004 to the current quarterly dividend of $0.49.
American Electric Power Company Inc (NYSE:AEP) has a long term payout ratio of 60% to 70%. The company has been assigned a BBB credit rating by S&P.