Currently, utilities (XLU) offer a yield of 3.3%, which implies a spread of almost 50 basis points to the benchmark ten-year Treasury yield and ~120 basis points to the S&P 500. Many top utility stocks offer a dividend yield that’s higher than the average.
Premium yield and dividend growth
PPL (PPL), Southern Company (SO), and Dominion Energy (D) are trading at a yield of 5.3%, 5.1%, and 5.3%, respectively. Duke Energy (DUK) offers a yield of 4.4%. PPL and Southern Company increased their dividends 4% and 3% compounded annually in the last five years, while Dominion Energy’s dividends grew 8% during the same period. Utilities at large managed to grow their dividends ~4% in the last five years.
Investors chose defensive sectors like utilities amid the recent market turmoil due to trade war tensions. Utilities (XLU) usually have higher dividend payment capabilities and steady stock price movements. In the last 12 months, utilities returned (including dividends) 8.2%, while broader markets returned -4%.
Interestingly, none of the above stocks delivered the best total returns in the last five years. These top-yielding utilities lagged their peers that had the best returns during this period.