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Dividends4Life (30.13)

Utilities Stock Funds Were 2011's Bright Star

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January 23, 2012 – Comments (0) | RELATED TICKERS: DUK , ED , SO

Utility dividend stocks. When you hear those words what do you think of? Long considered the domain for "widows and orphans", utilities have developed a somewhat stodgy reputation. Why are utilities considered good for widows and orphans?

Here a few reasons:

1. They are generally less volatile than the market
2. Their products are something that people need
3. Their dividends tend to be more stable and secure

According to research using Morningstar's data, seven of 2011's top 10 U.S. stock funds were utilities sector funds, including top-ranked ProFunds Utilities UltraSector (UTPIX), which returned nearly 26 percent. The lowest return of the 10 funds was 16.07%, which is incredible when you consider the Standard & Poor's 500 was virtually flat in 2011.

I am not generally a fan of funds (mutual funds, ETFs, CEFs, etc.), since I believe hand selected individual dividend stocks will usually beat an indexed fund's performance, over time. Below are some of the top performing utility stocks that I track with a 2011 dividend adjusted return greater than 20%:

Duke Energy Corp (DUK). provides service to 3.9 million electric customers in North Carolina, South Carolina, Indiana, Ohio and Kentucky, and 500,000 gas customers in Kentucky and Ohio. The company has paid a cash dividend to shareholders every year since 1926 and has increased its dividend payments for 7 consecutive years.
Yield: 4.7% | 2011 Return: 30.2%

Consolidated Edison, Inc. (ED) is an electric and gas utility holding company that serves parts of New York, New Jersey and Pennsylvania. The company has paid a cash dividend to shareholders every year since 1885 and has increased its dividend payments for 38 consecutive years.
Yield: 4.1% | 2011 Return: 30.8%

AGL Resources Inc. (GAS) is an energy services holding company that distributes natural gas in Florida, Georgia, Maryland, New Jersey, Tennessee, and Virginia. The company has paid a cash dividend to shareholders every year since 1939 and has increased its dividend payments for 9 consecutive years.
Yield: 3.4% | 2011 Return: 21.9%

NextEra Energy, Inc. (NEE) engages in the generation, transmission, distribution, and sale of electric energy in the United States and Canada. The company has paid a cash dividend to shareholders every year since 1944 and has increased its dividend payments for 17 consecutive years.
Yield: 3.7% | 2011 Return: 21.9%

NSTAR (NST) is a Boston-based holding company that serves some 1.4 million electric and natural gas customers in Massachusetts, and has agreed to be acquired by Northeast Utilities. The company has paid a cash dividend to shareholders every year since 1879 and has increased its dividend payments for 13 consecutive years.
Yield: 2.6% | 2011 Return: 23.0%

Piedmont Natural Gas (PNY) distributes natural gas to residential, commercial and industrial customers in portions of North Carolina, South Carolina and Tennessee. The company has paid a cash dividend to shareholders every year since 1956 and has increased its dividend payments for 33 consecutive years.
Yield: 3.5% | 2011 Return: 26.2%

Southern Company (SO) is an Atlanta-based energy holding company that is one of the largest producers of electricity in the U.S. The company has paid a cash dividend to shareholders every year since 1948 and has increased its dividend payments for 10 consecutive years.
Yield: 4.2% | 2011 Return: 29.9%

Vectren Corp. (VVC) is an energy holding company that delivers gas and/or electricity to more than one million utility customers in Indiana and Ohio, and offers other energy related products and services. The company has paid a cash dividend to shareholders every year since 1946 and has increased its dividend payments for 52 consecutive years.
Yield: 4.8% | 2011 Return: 25.4%

WGL Holdings Inc. (WGL) provides natural gas service in theWashington, DC, metropolitan area and surrounding regions, including Maryland and Virginia. The company has paid a cash dividend to shareholders every year since 1852 and has increased its dividend payments for 36 consecutive years.
Yield: 3.6% | 2011 Return: 30.0%

Westar Energy, Inc. (WR) provides electric generation, transmission and distribution services to apx. 685,000 customers in Kansas as of December 31, 2009. The company has paid a cash dividend to shareholders every year since 1962 and has increased its dividend payments for 8 consecutive years.
Yield: 4.5% | 2011 Return: 20.1%

Utilities have their own special set of challenges. Their debt and shares outstanding tend to grow over time - not the preferred direction for either. Also, there are industry specific issues that utilities face, such as radioactive waste for nuclear power plants and air pollution for old coal-fired generators. However, despite their risks, utility dividend stocks have been and will continue to be a cornerstone for conservative income investors.

Full Disclosure: Long SO and VVC in my High-Yield Portfolio; Long ED, PNY in my dividend growth portfolio. See a list of all my dividend growth holdings here.

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