Dividend Rich, Deal Ready Utility Stocks

U.S. utility stocks were a safe way to escape a worsening economy last year with many utility sector funds -- like the Vanguard Utilities ETF(VPU_) and the Utilities SPDR(XLU_) -- significantly outperformed the major indices in 2011. The sector was boosted by its stable revenues and high dividends, which attracted safety-minded investors as the yield on U.S. Treasury bonds plunged. In 2011, mega-mergers also led a continued utilities recovery from a 2009 lows as companies looked at consolidation as a way to wrench out cost synergies and lower pressure on operating margins.

While $10 billion deals may not be as common in 2012, Fitch Ratings expects continued utilities M&A and gives 10 companies to watch for as possible acquisition targets. The keys to the expected utilities M&A wave in 2012 are threefold. Chiefly, regional powerhouses with non-regulated merchant power businesses are going to look at tie-ups as a way to create cost synergies to overcome falling natural gas and electricity prices. Meanwhile, others may look to diversify their unregulated customer bases to those with regulated contracts, less vulnerable to falling energy prices.

Source: The Street

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