Best Investment Opportunity

An overlooked investment sector is outshining all of the rest this year. While everyone is in love with the FAANG stocks and buying real estate, utility stocks have been having an exceptional year. Utilities are not just the best investment opportunity and best stocks to invest in right not. They are traditionally excellent long term investments with strong intrinsic stock value.

Why Are Utility Stocks Good Investments Today?

Market Watch writes about the hottest stock-market sector. And, guess what? It is the utilities!

It may not surprise you that utility stocks have fared well as interest rates have declined, but a closer look at the sector may genuinely shock you.

As discussed when we reviewed the best-performing stocks of 2019, the utilities sector of the S&P 500 SPX, +0.57%  was the benchmark index’s top performer in the third quarter. But a closer look at 12-month total returns for the sectors, the full index and the Dow Jones Industrial Average DJIA, +0.61% is enlightening, and so are the longer-term figures.

As Market Watch notes, the return for the year on Utilities beats the rest at 27.1% ahead of real estate at 24.5% and consumer staples at 16.6%. Information technology is lagging at 7.1%.

Then if you look at returns over 20 years, consumer staples returned 427% to 357% for utilities and 339% for health care. The 20-year return on information technology is 187%.

The prospect demonstrated by the inverted yield curve is that interest rates will go down and stay down for a long time. This is always beneficial to utility stocks whose dividends will outshine bond yields in a low-interest-rate environment. Here is a list of the top utility dividend stocks.

Utilities are the best investment opportunities today.

Market Watch

Investors should take note that the utility industry is going through a period of mergers and acquisitions. As such, you need to look out for share dilutions and other factors that will affect the short term price of any utility purchases. But, over the long term, these are generally solid investments that fit well into our idea of how to invest without losing any money. While utilities belong in any long term investor’s portfolio, we can see that utilities can provide excellent short term gains and are, in fact, the best investment opportunity today.

How to Buy Utilities as Investments

The first part of investing in stocks is to understand what a company does to make money and how their business plan will continue to generate income into the future. Utilities are unique in that they deliver essential services and will not go away. People will always need gas, electricity, and water. The risks when investing in utilities have to do with management of the utility, changes in regulations, or mergers and acquisitions that are badly done.

When you are looking at utilities to buy, look at their dividend and price. And, look at what their plans were five years ago and how that worked out. Look at their plans for the next five and ten years and make sure that you are comfortable with what they are doing. A profitable utility that is paying a top dividend may be tempted to buy out a neighboring utility in an attempt to benefit from economies of scale. But, if they are going to be spending a lot of money upgrading dated facilities or paying off punitive damages from a nuclear power plant accident, it is time to pass on that investment.

Make sure that you will continue to receive the high dividend that the company is paying. How long have they been paying dividends? When a solid utility has been paying and increasing dividends for fifty or a hundred years, you can generally trust that they will continue to do so.


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