by Susan J. Aluise | November 18, 2011 11:11 am
In today’s volatile market, you’ve got to endure a lot of risk if you want to get a decent return, right?
Not necessarily: The utility sector has several stocks with dividend yields over 4% that have the potential of outperforming the broader market and generating serious returns over the long term.
So, if you’re looking for income and healthy dividends — and are still skittish about the real estate market — investing in the utility sector might be for you. Unlike the eye-popping (but unsustainable) dividends in volatile sectors like dry bulk shipping, the right utilities can deliver high yields with lower risk.
Utilities also have a stable source of cash from ratepayers because, feast or famine, business and residential customers will always need electricity, water or gas. That makes the right stocks in the sector good long-term income plays.
These four utility stocks, though already richly valued, boast dividend yields of more than 4% and are worth checking out:
PEPCO Holdings (NYSE:POM). The often-criticized electricity and natural gas provider in Washington, D.C., Maryland, Delaware and New Jersey has a current dividend yield of 5.3%. At $19.16, POM is trading 15% above its 52-week low of $16.57 in August. With a market cap of $4.3 billion, the stock has a price-to-earnings growth (PEG) ratio of nearly 3.4 (PEG ratios higher than 1 are considered overvalued). Its one-year return is nearly 9%.
Duke Energy (NYSE:DUK). The company, which operates natural gas and electric supply, delivery and trading businesses in the U.S. and Latin America, has a current dividend yield of 4.9%. At $20.14, DUK set a new 52-week high of $21.02 last week. With a market cap of $26.8 billion, the stock has a PEG ratio of 3. Its one-year return is more than 20%.
Progress Energy (NYSE:PGN). Progress, which is an integrated electric utility serving electric and gas customers in the Carolinas and in Florida, has a current dividend yield of 4.7%. At $52.34, PGN hit a new 52-week high of $53.82 last week. With a market cap of $15.4 billion, the stock has a PEG ratio of 3.3. Its one-year return is 25.5%.
American Electric Power (NYSE:AEP). AEP, which serves electric utility customers in Arkansas, Indiana, Kentucky, Louisiana, Michigan, Ohio, Oklahoma, Tennessee, Texas, Virginia and West Virginia, has a current dividend yield of 4.8%. At $38.33, the stock is trading nearly 16% above its 52-week low of $33.09 in August. With a market cap of $18.5 billion, AEP has a PEG ratio of nearly 3. Its one-year return is nearly 13%.
As of this writing, Susan J. Aluise did not hold an interest in any of the stocks named here.
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