The threat of rising interest rates has not been kind to the share prices of many of America’s biggest utilities. Providers of energy including The Southern Company (NYSE:SO), American Electric Power Company Inc (NYSE:AEP), and PPL Corporation (NYSE:PPL) have seen their stocks suffer at the hands of rising rates. In short, it’s been a rough summer for these high-yielding utilities.
At the same time, these companies represent high-quality companies with a virtually assured business model, due to the fact that electricity is vital to our very national security. Therefore, should every investor add one of these utilities to their portfolios, or stay on the sidelines? Or, rather, are utilities best reserved for a specific type of investor?
Plenty of pain to go around
Since August 1, PPL Corporation (NYSE:PPL), The Southern Company (NYSE:SO), and American Electric Power Company Inc (NYSE:AEP) are down 6%, 7%, and 8%, respectively. And, in each case, their performance lags that of the broader market. Over the same time frame, the S&P 500 Index is down just 3%. Going back slightly further, the results are even less impressive. Both The Southern Company (NYSE:SO) and American Electric Power Company Inc (NYSE:AEP) have endured double-digit losses since July 15.
Clearly, the fear of rising interest rates has taken its toll on each stock. This shouldn’t entirely be a surprise, though. While most investors can appreciate fixed income securities selling off as interest rates rise, it should be expected that utility equities would do the same, since they trade so similarly to bonds.
At the same time, though, investors can hang their hats on the fact that through the share price pain, these stocks have continued to do what investors count on them for; namely, providing hefty dividend yields. At current prices, investors can secure yields of 4.9% on both The Southern Company (NYSE:SO) and PPL Corporation (NYSE:PPL), and 4.6% on American Electric Power.
And, despite rising interest rates, there’s little doubt these utilities will continue to provide strong income for many years. After all, these utilities have long histories of paying, and raising, their payouts for many years, through periods of both high and low interest rates.
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. Meanwhile, American Electric Power Company Inc (NYSE:AEP) recently declared its 413th consecutive quarterly common stock cash dividend, and has paid a dividend to its shareholders every quarter since July 1910. Last but not least, PPL Corporation (NYSE:PPL) has paid dividends for 271 quarters in a row, a streak amounting to nearly 68 years.