Analyzing the 10 Top-Yielding SPX Utility Stocks
The US utilities sector holds the top spot in terms of dividend yields among the broader equities. Uncertainty in the broader markets in this period influenced investors to remain invested in relatively safer utilities. Utilities are considered relatively safe because they earn stable profits independent of economic cycles. They also offer stable dividends and have relatively smooth, steady stock price movements.
The Utilities Select Sector SPDR ETF (XLU), which represents the S&P 500 Utilities Index, currently yields 3.5%. This yield represents a premium of 130–140 basis points to the ten-year Treasury yields and to the broader market. In this series, we will discuss the top ten highest-yielding utility stocks from the S&P 500 Utilities Index.
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While broader utilities yield 3.5%, Southern Company (SO)—the leading utility stock—yields 4.6%, which is significantly higher than the average. Southern Company is a Georgia-based regulated utility with diversified operations. As the second-largest regulated utility, Southern Company has one of the best dividend profiles in the sector.
Southern Company has increased its per-share dividends for the last 15 consecutive years, and its yield has not fallen below 4% in the last 12 years. Notably, Southern Company stock has corrected in the last few months, which could be one of the primary factors behind its high yield.
Regulated versus competitive utilities
The top-yielding utility stocks considered in this series may have operations that are entirely regulated or competitive. Regulated operations generally provide earnings stability, which is of utmost importance for stable dividends. Southern Company, Duke Energy (DUK), PPL Corporation (PPL), and SCANA Corporation (SCG) derive almost all of their earnings from regulated operations.
However, competitive operations are usually market-driven and are less stable. Significant exposure to competitive operations may lead to lower stability in earnings, which could result in volatile stock price movements. FirstEnergy (FE), AES Corporation (AES), Entergy (ETR), and Public Service Enterprise Group (PEG) are among the competitive utilities in the sector.