Investors seeking high-yielding I dividend income may want to defy the distress signal flashing on some blue-chip utility stocks. Rising interest rates have pushed down the price of electrical utility stocks in recent months, which has in turn sent their dividend yields higher.
The combination of falling prices and rising yields suggest a stock is falling out of favour with investors, which makes sense as far as utility stocks go. They're classic rate-sensitive stocks and could remain under pressure until rates stabilize and move lower. But that's a one-dimensional view. If you consider dividends as well as share price, the weakness could be a buying opportunity for long-term investors seeking dividend income. Tom Connolly of DividendGrowth.ca recently highlighted four utilities with yields that caught his eye.
Canadian Utilities Ltd. (CU-T): The yield in late February was 4.5 per cent; Mr. Connolly said that when the yield hit 4.6 per cent last week, it was the highest since 2000.
Emera Inc. (EMA-T): The yield hit 5.6 per cent last week, right around the high reached during the stock market plunge of early 2009.
Atco Ltd. (ACO.X-T): At 3.6 per cent, Mr. Connolly said Atco's yield is the highest in decades.
Fortis Inc. (FTS-T): The yield, just above 4 per cent, was only a bit higher in the dark days of 2009 and 2002. Mr. Connolly said average yield since 2000 has been 3.8 per cent.
The average decline for the four over the year through Feb. 20 was 7.9 per cent. All but Fortis are also down on a cumulative basis over the past three years.
But what they have going for them is a high-yielding, stable dividend that you can reasonably expect to move a little higher every year. If you're an income-focused investor willing to hold over the long term, this is much more of a story than share price volatility caused by fear of rising interest rates.
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