Defensive plays have once again come into focus as broader markets chase all-time highs. The safer utilities sector continues to offer a premium dividend yield along with stable upward price movement. On average, utility stocks are currently yielding 3.2%, while broader markets offer a yield close to ~2%. In comparison, the benchmark ten-year Treasury yield is at 2.10%. On a total return basis, utilities (XLU) on average returned 25% over the past 12 months, while the S&P 500 returned 6%.
PPL is the top-yielding utility stock
There are many utility stocks that have yields way higher than the peer average. The mid-size regulated utility PPL (PPL) yields 5.3%, approximately a 300 to 350 basis-point premium against broader markets and the Treasury yield. Top regulated utility Southern Company (SO) yields ~5%, while Dominion Energy (D) stock is currently trading at a yield of 5.2%.
Utility stocks generally possess higher yields because they distribute a large part of their profits to shareholders in the form of dividends as they are involved in relatively low-risk highly regulated operations. Their expected dividend growth is estimated to remain at ~4% per year, which is in line with earnings growth for the next few years.