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3 High-Yielding Utilities To Hedge Your Volatile Portfolio

Daniel Laboe

High yielding stocks are looking increasingly attractive as fear-driven investors buy up US Treasuries and plummet their yields. In these rocky markets high yielding utility stocks provide you with not only a robust yield (2%-5% generally), but they also help hedge your portfolio against the broader market risk with their exceptionally low betas that won’t track with the rest of your portfolio.

The past 2 weeks have been the most volatile markets that we have seen since January. The escalating trade war and global economic cool down are weighing on investors’ decisions. The inverted yield-curve is a product of investor fear. The Federal Reserve’s Fed Funds rate (overnight rate) is keeping short-term rates steady around 2% while distressed investors are buying up long-term bonds pushing those yields down.

The inverted yield curve is causing more fear in the market and accentuating the inversing even further in an endless cycle of panic. Below is the current yield curve for US Treasury Bonds.

Here is what that same yield curve looked like 1 year ago today (a relatively normalized yield curve).

Most investors will tell you that this is a sign of an impending economic downturn but the only thing this shows me is fear and an impending economic slowdown may very well come from this self-fulfilling prophecy.

Below I have provided some safe portfolio options for these times of market distress and uncertainty.

Dominion Energy (D)

I have had my eye on dominion for some time now, getting in and out of at prices level I was comfortable with. I had the solace of a 5% dividend knowing that if the price didn’t bounce I would still be made whole. Dominion has remained a very steady investment growing roughly 6% in 2019.

Dominion operates in 18 states and serves over 17.5 million customers. The firm has secured earnings for more than 95% of its assets insuring that its profits are safe. The company is investing a $26 billion in existing infrastructure which is expected to drive 5% additional earnings in perpetuity.

This stock has a significant amount of regulated earnings making this investment low risk and the 5% dividend is much more attractive than the 1.5% yield that the 10-year treasury bond is providing.

Duke Energy (DUK)

Duke energy has been trading in a tight range over the past 52 weeks, roughly half that of the S&P 500. The stock has only seen about 5% growth since the beginning of the year, which is underperforming the industry and the market.

The 4.2% dividend and .12 beta make this stock quite attractive in this era of high volatility and low yields.

Duke is planning on investing $37 billion over the next 4 years, which is expected to produce an additional 6% earnings growth over the next 5 years

NextEra Energy (NEE)

NextEra is a leading clean energy supplier in the US and has outperformed its industry as well as markets with returns over 28% so far this year. This stock has seen unbelievably consistent grow, with its 2019 low on the first day of the year and hit its all-time high today. This stock doesn’t seem to be phased by market volatility and still provides investors with a savvy 2.4% dividend.

NextEra energy is exactly what its name describes, the next generation of energy. More than 50% of this firm’s energy is generated from a renewable source or nuclear powerplant, while the remaining 46% is generated gas natural gas. The company is expected to have a compounded annual growth rate of 6%-8% through 2021.

This stock may not provide the same ultra-high dividend that Dominion and Duke grant, but it gives investors the most dependable upward moment with very little effect from the broader markets.

Take Away

In this time of uncertainty, it is prudent to ensure that your portfolio is properly hedged against significant downfalls. These three utility stocks will give your portfolio a boost in yield and lower your overall beta.

 

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Duke Energy Corporation (DUK) : Free Stock Analysis Report
 
Dominion Energy Inc. (D) : Free Stock Analysis Report
 
NextEra Energy, Inc. (NEE) : Free Stock Analysis Report
 
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