A well-rounded dividend investment portfolio just doesn’t happen by accident. As noted in Charlie Munger’s 10 Rules for Investment Success, “Allocate assets wisely: Proper allocation of capital is an investor’s No. 1 job.” It is human nature to want to jump on the what’s hot bandwagon and ignore what is considered boring, like utilities.
Long considered the domain for “widows and orphans”, utilities have developed a somewhat stodgy reputation. Why are utilities considered good for widows and orphans? Here a few reasons:
- They are generally less volatile than the market as a whole (low beta)
- Their products are something that people continue to need and use no matter what the economy is doing, thus
- Their dividends tend to be more stable and secure
Utilities would be the perfect dividend income investment, except for one thing - they tend to have low dividend growth rates. As such, you wouldn’t want a whole portfolio of utilities and you need to be very selective in which utilities are added, and when they are purchased. In my personal allocation, utilities are limited to a maximum of 10% of my portfolio (currently, they make up 3.7% of my total investment portfolio).
In addition to the regular buy criteria, I look for a higher yield when buying utilities, generally greater than 5.5%, but I really prefer around 6%. This eliminates many utilities, but there are still several from my Stock Ideas page that might be worth an additional look. Here is a list of all the utilities that have paid a dividend for more than 25 years and have a yield of 5.5% or greater:
Vectren Corp. (VVC) - 6.23% Yield
This energy holding company, headquartered in Evansville, IN, provides natural gas and electric energy to more than one million customers in Indiana and Ohio. It also offers energy related products and services to customers throughout the Midwest and Southeast. It has increased its dividend for 49 consecutive years. It last increased its dividend in November 2007.
