Why Utilities Trade at Lower Yields than Their Historical Levels



Competitive utilities: Dividend yield

Let’s have a look at the dividend yields of competitive utilities in this part. Exelon Corporation (EXC) is trading at a dividend yield of 3.5%, and FirstEnergy (FE) is trading at a dividend yield of 4.6%. Public Service Enterprise Group (PEG) has a yield of 3.8%.

In general, utilities are trading at a dividend yield of 3.5%, which has a premium of nearly 150 basis points to the broader market. SPY currently trades at a dividend yield of 2%.

Comp utilities yld

The prolonged stock rally in utilities (XLU) can be one of the main reasons behind these stocks trading at discounted yields compared to their historical yields.

In comparison, regulated utility giants Duke Energy (DUK) and Southern Company (SO) are currently trading at a dividend yield of 4.5%. These stocks move in line with the volatile earnings of unregulated utilities, which can push the yields higher.

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ETF exposure

The iShares Select Dividend ETF (DVY) tracks the investment results of an index consisting of high dividend–paying US companies. The fund has 100 stocks in its holdings, with five-year records of dividend payments, and it has the maximum weight of nearly 30% in US utilities. DVY invests nearly 0.7% of its total investment in Exelon and FirstEnergy.

Among the other competitive utilities, NextEra Energy (NEE) and Entergy (ETR) have nearly 2% weight each in DVY.


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