For the investor who wants to devote most of his energy to finding overlooked growth stocks, it's a good time to pick up a predictable dividend earner as a hedge. A steady payout of dividends can be a welcome cushion for the occasional dips those growth portfolios inevitably suffer.
The electric utilities sector is full of these kinds of dividend plays, and YCharts Pro pegs many of them as undervalued. With the market's recent rally, investors have pulled money out of utility stocks for more immediately-compelling stories. Share prices in the sector have fallen while the wider market surged.
ETR, PPL, D, AEP, SPY Chart by YCharts
So what's the best buy in a sector full of attractive shares? In this scenario, we're looking for a stock that will provide steady but rising returns rather than an exceptionally high payout. This will be the widows-and-orphans share for the investor who prefers to focus his attention on more needy growth stocks.
Fifteen years ago, finding this kind of safe, no-surprises play in the electric utilities sector was a no-brainer. Most utilities operated as monopolies controlling the entire chain of production through distribution. Their regulated prices made earnings and dividends pretty predictable with basic math.
Now deregulated, electric utilities compete for what used to be captive customers, and many operate in non-regulated businesses, such as trading energy futures or building power plants on spec. It's not at all uncommon now for a utility to cut its dividend because earnings in one of the market-driven segments did not live up to expectations.
For the investor still interested in electrics for stability, the most important factor is the company's willingness and ability to consistently reward shareholders. The differences in how they do this can be seen by comparing two attractive companies in the sector: Entergy Corporation (ETR) and PPL Corporation (PPL).