Don’t Chase High Utility Yields

Ted

FYI: More than most sectors, utility stocks have felt the sting of rising interest rates.

While the Standard & Poor’s 500 is up nearly 5% this year, the utilities in the index are down 4.5%, besting only the real estate group, which has lost 5%.

Still, utilities, which were yielding about 3.6% late last week, remain attractive to income investors. With rates so low, these stocks serve as bond proxies.

At a time of rising rates and strong economic growth, though, investors are more apt to move from the sector into riskier parts of the market. And higher bond yields pose competition.
Regards,
Ted
http://www.cetusnews.com/business/Don’t-Chase-High-Utility-Yields.B1tqTUeBf.html

Old_Skeet

The utility sector makes up about six percent of Old_Skeet's portfolio. I'm thinking while the sector is out of favor makes for a good time to add some more utility funds. A couple of utility funds that I like but do not currently own are MMUFX and FKUTX. And, an infrastructure fund (that I own) that has a good amount of utilities in it is PGUAX.

MikeM

@Old_Skeet, I'm a little confused. Isn't buying the Utility sector when out of favor the direct opposite of your buying the lead dog(s) sector philosophy you proscribed too in a different post?

Old_Skeet

Good morning @MikeM,

Thank you for your inquiry.

Old_Skeet has many investment strategies at play within his well diverisfied portfolio.

Currently, the Compass Strategy (which I'm thinking you are referencing) is momentum based strategy found in the growth area of the portfolio and picks a spiff hound form the lead pack to invest in. I have a sleeve within the growth area that contains this strategy called ... the spiff sleeve ... where my special investment positions are found.

In other parts of the portfolio are where some value type strategies are found. The compass can be used as an aid in locating these (out of favor sectors) as well.

Many years ago, back in my Scouting days is where I learned of the value of a compass in finding my way. Today, I still use a compass (of sorts) in finding investing opportunity within the market. In addition, I learned that a two man canoe could make greater distant over a one man canoe. And, a three man canoe was even better. With this, this is why most of my investment sleeves have at least three members (some more). This is because when one becomes tired and begins to falter then there are the other two (or more in some cases) that can offer suppport and continue to propel the sleeve.

Were you a Scout?

MikeM

Two men in a canoe rowing in opposite directions goes no where. Three men rowing, 1 in one direction (value investing), 1 in the opposite (momentum investing) and the 3rd can't decide who's interpreted the compass correctly works to keep the canoe from going in circles.

In any case, I can tell you have fun with investing. It's just, at times to the reader, it all looks like a complicated all encompassing index. I think over time though you might make it all work.

Cub scout, but no further.

catch22

Tax reform package and utility companies......I'd read through some of this article before thinking about a pure utility investment at this time. I recall that Michigan utilities had to submit their plans regarding rates and such going forward yesterday (Jan 19); as to the benefit to customers.
https://www.forbes.com/sites/greatspeculations/2018/01/11/utility-stocks-and-tax-reform-what-investors-need-to-know/#31c75d554d82

Ted

@MFO Members: The Linkster recommend you own the two big dogs of the telecommunication world, T and VZ, both have excellent upside potential and excellent yields.
Regards,
Ted

Old_Skeet

Hi @MikeM,

I never had that kind of problem in a canoe (that you have described) with other scouts that I remember. My experience was that scouts work as a team ... and, if we had a straggler we'd off load some of his pack and carry it for him.

Perhaps, your experience was different than mine.

Simply stated ... The goal is to propel the sleeve and sometimes the sleeve has to be reconfigured in order to accomplish the goals. Indeed, it seems you might need to recruit a new canoe crew if they continue to falter as a team. Perhaps, a new team leader might be the first step.

rono

Howdy campers,

As a long time utility player with CMS, I still like them a whole bunch. When searching for decent dividend yielding stocks, I start with companies that I do business with. Here in Michigan, DTE and CMS are the two big dogs and we send a check every month to the latter. The yield of 3% helps ease the pain. As for DTE, it's yielding 3.4%.

As for the telecom's, geez, wifey is baby bell mgt retiree. duh.

Just sold some T before Christmas for the tax loss AND the war they are in with the DOJ. Bought some VZ to replace it. After the wash rule expires, I'll add some T back. Yield is wonderful and we're customers.

"widows, orphans and rono's"

and so it goes,

peace,

rono

Crash

I note that my single-stock utility, PNM has "slud" downward badly in 2018, as Dizzy Dean might have expressed it. Before the end of 2017, the company raised its dividend. Third or 4th time since I got in, in Sept. of 2015. The NM regulatory body was not being helpful to shareholders, preferring to adjust a rate agreement already signed-onto by the parties concerned, including the environmentalists. Last 2 days, the stock rose nicely. We've already removed some of our stake with a decent profit, for traveling purposes. I sent them another check 2 days ago. PNM's yield is NOT among the high-fliers in the utility sector. But we are still ahead of the game. I initiated at $25 and change. Today, it's at $37.00.

slick

@Crash: I was wondering if you were still holding on to PNM after regulators rejected the increase. I've got solar panels, so I don't help you much. I pay about $150 per year to them for all my electricity. With sun 300+ days per year, it works nicely

Junkster

Back in the old days - like the 1950s through the 1980s - one of the best if not best leading indicators of the stock market was the action of the Dow Jones Utilities Index. Two of the more prominent examples were the peaking of the Utilities in November 1972 and January 1987. I quit following this indicator after 2000 and have no ideal if it still has validity. However, with sentiment indicators at extremes not seen in generations, I would be wary of the stock market.

MikeM

Indeed, it seems you might need to recruit a new canoe crew if they continue to falter as a team. Perhaps, a new team leader might be the first step.

Old_skeet, 2 different investment concepts working in opposing directions is not a team. It is a bet on average. One will work while the other does not. You either fail to accept or fail to understand my analogy, which of course was a play on yours. Investing in the top performing sector ETF (momentum) and at the same time to invest in the worst performing ETF (under valued) is just a plan to be right on 1 of 2 bets. One of them has to work. And being the opposite investment theory, one won't. Your team is not rowing together. Given what you said, your canoe is drifting with the current, or should I say the market.

I know you won't accept any of what I said, so I'll leave it at that.

Old_Skeet

Hi @MikeM,

There are many multi strategy funds that work as a team. An example of this would be a fund-of-funds. Take American Fund's Growth & Income Portfolio Fund (GAIOX). It is a Morningstar four star fund that is comprised of six American Funds all with different mandates and strategies; but, under this wrapper they are blended together and become a team.

So, with the above being stated it looks a though I have a different perspective on the team concept than perhaps you do. However, these different perspectives when blended together is what makes a portfolio. I'm thinking that if you check your own portfolio it Is comprised of a good number of funds. Seems, they vary in mandates and strategies; but, within your own portfolio they become a team of sorts.

I know many of us see things in different light and perspectives. But, the above pretty much implies my meaning of coming together and working as a team.

FWIW ...

Old_Skeet

Art

Skeeter, You are maybe confused as that is my portfolio.

Old_Skeet

Thanks @Art,

I made some notes but did not put names on them. It could indeed be yours. So, I'll just modify the post and remove the funds but the message remains. If my memory is correct you earned the rank of Eagle in Scouting?