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Oct
1
Jonathan Yates
Buy High Yield Utility Stocks When Interest Rates Rise
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Due to the low interest rate environment, utility stocks such as Otter Tail Corporation (NASDAQ: OTTR), Westar Energy (NYSE: WR), and Execelon Corporation (NYSE: EXC) are all up for the year.  But due to concerns about interest rates rising, the share prices are off in recent trading.  Should the stock prices fall more, it could be an opportunity for investors to buy at a discount for the long term.

When interest rates are low, utility stocks generally do well.

That results from the dividend yield of utilities, which is a very attractive feature of the stock.  The dividend is secure and sold from utility stocks.  While the average dividend yield for a member of the Standard & Poor’s 500 Index is around 2%, Exelon Corporation has a dividend yield of 4.18%.  For Otter Tail Corporation, the dividend yield is 4.31%.  Westar Energy pays a dividend of 4.44%.

Each of these stocks has fallen in recent market action, which makes the dividend even higher.  Should the energy sector continue to be in disfavor, it is likely the share prices will plunge even more.  That will result in the dividend yield being even more attractive.

That is why high yield utility stocks should be purchased when the share prices decline due to increasing interest rates.

Utility stocks are very stable, often times called “widow and orphan” stocks.  The share prices do not fluctuate that much, which makes the stocks even more appealing.  When the stock price falls for nothing to do with the business operations of the utility but as a result of something like higher interest rates, long term investors should look upon that as an opportunity to buy at a lower price with a higher yield.

 



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