Renewed weakness in the stock market this week, as well as a pullback in market-derived inflation expectations, has driven demand in Treasury bonds and pushed down yields.
The catalyst has been ongoing worries that the Federal Reserve will hike interest rates for the first time since 2006 before the end of the year, combined with concerns about the upcoming Q3 earnings season and weak economic data (especially the regional manufacturing surveys).
That in turn has put a bid under yield-sensitive utility stocks as investors seek safety in non-cyclical dividend payers. The sector is enjoying a surge of relative strength last seen in early August.
Overall, this is a return to favor for utility stocks on a level that hasn’t been seen since January — ending a long period of listlessness between February and July.
For those looking for picks in the sector, consider these seven utility stocks.
Utility Stocks Perking Up: Consolidated Edison (ED)
Consolidated Edison (ED), which operates mainly in the area surrounding New York City, got a lift this week thanks to a positive mention on CNBC’s Mad Money program. Analysts at Mizuho are positive on the name as well and recently lifted their price target to $66 on the purchase of additional solar interests in California that further add to its considerable position in renewables, which are set to drive earnings growth.
ED stock carries a 3.9% dividend yield.
Utility Stocks Perking Up: American Electric Power (AEP)
In addition to its power generation, transmission and distribution business, American Electric Power (AEP) transports commodities along the Ohio, Illinois and Mississippi rivers using more than 2,000 barges, 37 towboats and 18 harbor boats.
AEP, which was founded in 1906, was initiated with a “buy” rating by Mizuho analysts late last month on the expectation that management is well on its way toward announcing a divesture of its non-core businesses.
The stock carries a 3.8% dividend yield.
Utility Stocks Perking Up: Duke Energy (DUK)
Duke Energy (DUK), which operates throughout the United States and Latin America with roughly 57,500 megawatts of generation capacity, recently settled a 15-year legal case with the United States over alleged violations of the Clean Air Act at some of its coal-fired power plants in North Carolina.
In a sign the company is working to shed its fossil fuel image, DUK announced earlier this month it had completed four solar projects in eastern North Carolina — more than doubling its solar portfolio in the state.
The stock carries a 4.6% dividend yield.
Utility Stocks Perking Up: PG&E (PCG)
PG&E (PCG), which operates mainly in northern and central California, serves roughly 16 million customers. The company was in the news recently after disclosing the California Department of Forestry and Fire Protection is investigating whether a tree hit one of its powerlines, causing the Butte wildfire currently active in the northern part of the state.
At the end of July, PCG reported top- and bottom-line beats driven by a 6.7% annual increase in revenues. The stock carries a 3.4% dividend yield.
Utility Stocks Perking Up: Public Service Enterprise Group (PEG)
Public Service Enterprise Group (PEG), which operates throughout the northeast and mid-Atlantic states, boasts a portfolio of more than 13,000 megawatts of generation capacity. PEG stock is enjoying an increase in analyst coverage with both Citigroup and JPMorgan initiating this month with “neutral” ratings.
Argus was more positive on the name earlier this year, citing a growing network of transmission assets and a well-managed regulated utility subsidiary.
PEG yields 3.9%.
Utility Stocks Perking Up: PPL Corp. (PPL)
PPL Corp. (PPL) delivers electricity and natural gas in the United States and the United Kingdom with the help of more than 17,000 employees.
Shares were recently upgraded to “buy” by analysts at UBS, which boosted its share price target in August, though it did lower the price target from $34 per share to $33.
PPL carries a 4.7% dividend yield.
Utility Stocks Perking Up: Southern Co. (SO)
Southern Co. (SO) is a public utility operating in Alabama, Georgia, Florida and Mississippi with the help of more than 26,000 employees.
In late August, Southern announced it planned to buy AGL Resources (GAS) in a stock-and-cash deal valued at around $8 billion plus the assumption of debt. It’s the company’s first move into natural gas distribution.
Shares carry a 4.9% dividend yield.