The search for yield has accelerated in recent months and dissatisfied income seekers swayed by the paltry offerings in fixed income are entering the stock arena in droves.
Utility stocks are chief among the beneficiaries, and despite this year’s stellar gains, the Utilities SPDR (ETF) (NYSEARCA:XLU) still offers a solid yield of 3.9%.
Sure, it’s not quite at 4% or let alone a mouth-watering 5%, but in a zero interest rate world 3% is just fine, thank you very much.
Remember, 10-year Treasury yields sit at a lowly 1.56%. The price action in utility stocks has been incredibly well behaved. Dips have been shallow and selling pressure has been contained.
What’s more, last week’s pullback returned XLU to its rising 20-day moving average, delivering a low-risk entry to spectators looking to grab some dividend goodness. And here are three of the top setups in the utility sector:
Utility Stocks to Buy: American Electric (AEP)
Dividend Yield: 3.2%
The trend of American Electric Power Company Inc (NYSE:AEP) is a thing of beauty. It notched a new all-time high two weeks ago at $71.32 before receding quietly to its current perch.
All major moving averages are pointing higher reflecting its bullish posture across all time frames. There really isn’t much not to like here. Friday’s test of the 20-day moving average succeeded as bulls sallied forth right on schedule.
This morning’s pop is confirming the turn, so consider this utility stock ready to buy. If you’re looking to cut the cost consider buying the Nov $67.50 call options. Earnings will be released July 28.
Utility Stocks to Buy: Duke Energy (DUK)
Dividend Yield: 4%
Duke Energy Corp (NYSE:DUK) boasts a similar chart to AEP stock. And while it has yet to score a new all-time high on the current ascent, it’s very close.
Volume patterns have supported a bullish stance with accumulation days aplenty littering the landscape. Like AEP, last week’s 20-day moving average test in Duke Energy succeeded. Provided the newly formed pivot low holds, the future looks bright for DUK.
If you’re looking for an option to buy consider the Oct $85 call.
Utility Stocks to Buy: Entergy Corp. (ETR)
Dividend Yield: 4.2%
Entergy Corporation (NYSE:ETR) rounds out our list of utility stocks. It recently broke out of a solid resistance level at $80 completing a cup-and-handle pattern with bullish implications.
Like its predecessors, ETR is flashing uptrends across the board and is creating a nice little pullback for traders looking to scoop up shares at a low.
Depressed implied volatility is keeping a lid on ETR option prices so now’s as good a time as any to buy calls if you think the good times keep rolling for utility stocks. Buy the Sep $80 calls.
As of this writing, Tyler Craig did not hold a position in any of the aforementioned securities.