Owning utilities can be useful

Posted by D4L | Monday, April 18, 2011 | | 0 comments »

There's a lot to like about utilities. For starters, utilities typically enjoy monopolies in their market area. They don't have to worry about losing customers to some new website or technological gadget. An economic slowdown might temporarily cut demand for electricity or natural gas. But, long-term, utilities typically grow revenues and earnings in the mid-single digit range annually. Utilities in faster growing regions do better, and those in regions with struggling economies do worse. While utility share prices might drop with the market during a downturn, they usually recover when the market revives.

All that said, for most investors, dividends are the main attraction for utilities. Dividends are regular cash payouts that you receive for simply owning a stock. While you're lucky to get 1 percent from a bank these days, many utilities are paying dividends equating to 4 percent or higher yields [your dividend yield is the dividends that you receive over the next 12-months divided by the price that you paid for the shares]. When the market dips, you'll still receive your dividends while you wait for the market to recover. That only works, of course, if your stock continues to pay its dividends as expected, and that's the advantage of owning utilities. Because they produce steady and predictable cash flows, dividend cuts are rare.

Source: Santa Cruz Sentinel

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