While popular momentum favorites like biotechnology and big-tech stocks get all the attention, many regular investors are focused instead on dividend-rich areas of the market — think master limited partnerships, real estate investment trusts and utility stocks — for their dividend yields and (relative) stability.
Unfortunately, valuations have been wiped out here over the past three weeks while U.S. Treasury yields have been pushing higher. On the surface, this is curious: Odds of a September interest rate hike from the Federal Reserve have been dropping amid market turmoil.
The working thesis is that the Chinese are responsible, liquidating T-bond positions to raise dollars needed to stabilize their currency. Also, over the past week bond market inflation expectations have been on the rise — ostensibly because traders are increasingly pricing in a continuation of 0% interest rates possibly into 2016.
In response, here are six utility stocks with yields between 3.5% and 5.5% that are under heavy pressure, at risk of falling under multiyear support levels (if they haven’t already).
For opportunistic investors, this could spell a chance at even better prices and higher yields on cost.
Utility Stocks on Sale: American Electric Power (AEP)
Dividend Yield: 4%
American Electric Power (AEP) shares have dropped nearly 11% from their July high on the lift in long-term yields.
A drop below the $52.50 level, marking support from June as well as the resistance level of last summer, would put lows near $47.50 in play. That would have shares yielding roughly 4.5%.
Utility Stocks on Sale: CenterPoint Energy (CNP)
Dividend Yield: 5.5%
CenterPoint Energy (CNP) has suffered a near 12% decline since the middle of August, continuing a decline that started in late 2014.
Shares are down more than 27% over this time, and CNP’s important moving averages are far, far overhead.
Utility Stocks on Sale: Exelon (EXC)
EXC Dividend Yield: 4.1%
Exelon (EXC) has dropped more than 12% from its August high and is down more than 20% from its December 2014 high.
Shares are testing support from last summer’s lows. A breakdown could result in a drop all the way to the 2013-14 lows near $25, which would be worth a 17% decline from here. Shares at that point would yield close to 5%.
Utility Stocks on Sale: Public Service Enterprise (PEG)
PEG Dividend Yield: 4%
Public Service Enterprise (PEG) carries a 4% dividend yield but has dropped more than 11% from its August high as it falls to test the bottom of its year-long trading range.
A violation would likely put the 2014 trading range mid-point near $36 in play — a nearly 8% drop from here that would push the yield to 4.3%.
Utility Stocks on Sale: Southern Co. (SO)
SO Dividend Yield: 5.1%
Southern Company (SO) carries a 4.9% dividend yield but has fallen back into the midst of its year-long trading range after reversing a short-lived spike over the summer. Shares are down nearly 10% from their recent highs and are down more than 17% from their January high.
There seems to be solid support near $42 — going all the way back to 2012 — but a breakdown would put 2012-2014 lows near $37 in play for a drop of nearly 12% from here, pushing yields up to 5.8%.
Utility Stocks on Sale: AES Corp. (AES)
AES Dividend Yield: 3.5%
AES Corp. (AES) has suffered a nearly 20% price decline since June to fall below its early 2015 lows.
A drop below $11 would complete a potential rounding top pattern dating back to 2013 and put late 2012 lows near $9.50 in play, which would bump yields up to 4.2%.
Anthony Mirhaydari is founder of the Edge and Edge Pro investment advisory newsletters. Free two- and four-week trial offers have been extended to InvestorPlace readers.
