With approximately 20 trading days left in 2021, and the major indexes up as much as 20% and more year to date, many portfolio managers are stuck with a very unique problem. Despite the incredible gains for the indexes, there is one huge issue for many who run money. With the S&P 500 just 3% or so below its all-time high, 275 of the 500 stocks are trading below their level from six months ago. In other words, most of the gains have been driven by just a few stocks, most of which of course are mega-cap technology leaders.
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The problem for those that run portfolios is that they have to cut loose many of their losers, and with the market fully valued, and very overbought, the buy-the-dip crowd can’t save what could be coming. It makes sense to raise some cash now, especially with the recent strength, by taking winners, squaring up by selling losers and moving to some safer areas. One spot that makes sense now is the top dividend-paying utility stocks. While hardly exciting, they can withstand heavy selling pressure better than almost any other sector.
We screened our 24/7 Wall St. utility research database looking for the highest yielding Buy-rated stocks and found four, and a top fund, that look very solid now. It is important to remember that no single analyst report should be used as a sole basis for any buying or selling decision.
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Pinnacle West Capital
The folks in Phoenix know this company well, and the incredible growth there will help drive revenues. Pinnacle West Capital Corp. (NYSE: PNW | PNW Price Prediction) through its subsidiary, Arizona Public Service Company, provides retail and wholesale electric services primarily in the state of Arizona.
The company engages in the generation, transmission and distribution of electricity using coal, nuclear, gas, oil and solar generating facilities. Its transmission facilities include approximately 5,728 pole miles of overhead lines and approximately 74 miles of underground lines. Its distribution facilities comprise approximately 11,225 miles of overhead lines and approximately 22,453 miles of underground primary cable, as well as owns and maintains 80 transmission substations and 443 distribution substations. The company also owns or leases approximately 6,321 megawatts of regulated generation capacity. It serves approximately 1.3 million customers.
Top Wall Street analysts feel that the company’s planned investments in strengthening its infrastructure and an increasing focus on renewable sources for power generation will help it take advantage of the expected demand surge for clean energy. Also, the firm’s top executives’ efforts to lower costs are expected to help boost its earnings going forward.
Pinnacle West Capital stock investors receive a 5.31% dividend. Argus has a $72 price target, while the consensus target is $66.77. The shares ended Thursday trading at $65.55 apiece.
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Southern Company
This large-cap utility leader makes sense for very conservative investors. Southern Company (NYSE: SO) engages in the generation, transmission and distribution of electricity. It also constructs, acquires, owns and manages power generation assets, including renewable energy and battery energy storage projects and sells electricity in the wholesale market.
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The company distributes natural gas in Illinois, Georgia, Virginia and Tennessee, as well as provides gas marketing services, wholesale gas services and gas pipeline investments operations. It constructs, operates, and maintains 75,924 miles of natural gas pipelines and 14 storage facilities with total capacity of 157 Bcf to provide natural gas to residential, commercial, and industrial customers. The company serves approximately 8.6 million electric and gas utility customers.
Southern Company also owns or operates 30 hydroelectric generating stations, 24 fossil fuel generating stations, three nuclear generating stations, 13 combined cycle/cogeneration stations, 44 solar facilities, 13 wind facilities, one fuel cell facility and one battery storage facility. It also provides products and services in the areas of energy efficiency and utility infrastructure. In addition, the company offers digital wireless communications and fiber optics services.
Shareholders receive a 4.32% dividend. The BofA Securities price target of $69 is higher than the $66.86 consensus target. Southern Company stock closed on Thursday at $62.01 per share.
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South Jersey Industries
While hardly a household name, this top company pays among the highest dividends of any utility we cover. South Jersey Industries Inc. (NYSE: SJI) engages in the provision of energy-related products and services.
Its SJG Utility Operations segment consists of natural gas distribution to residential, commercial and industrial customers in southern New Jersey. The ETG Utility Operations segment consists of natural gas distribution to residential, commercial and industrial customers in northern and central New Jersey.
The ELK Utility Operations segment consists of natural gas distribution to residential, commercial and industrial customers in Maryland. The Wholesale Energy Operations segment includes the activities of South Jersey Resources Group and South Jersey Exploration. The Retail Electric Operations segment consists of electricity acquisition and transportation to commercial, industrial and residential customers.
Investors receive a 5.27% dividend, and the stock will go ex-dividend next week on December 9, so investors that buy shares prior will collect the dividend. Maxim’s $31 price target is a Wall Street high. The consensus target for South Jersey Industries stock is $28.30, and shares closed at $23.58 on Thursday.
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Spire
This is another off-the-radar stock that makes good sense for nervous investors now. Spire Inc. (NYSE: SR) engages in the purchase, retail distribution and sale of natural gas to residential, commercial, industrial and other end-users of natural gas in the United States.
The company also is involved in the marketing of natural gas. In addition, the company engages in the transportation of propane through its propane pipeline, compression of natural gas, risk management and other activities. Further, it provides physical natural gas storage services.
In November, the board of directors unanimously agreed to increase the quarterly common stock dividend to $0.685 per share from $0.65 per share. The dividend is payable on January 4, 2022, to shareholders of record on December 10, 2021. Spire has continuously paid a cash dividend since 1946, with 2022 marking the company’s 19th consecutive year of increasing its common stock dividend on an annualized basis.
With the increase last month, investors now receive a 4.59% dividend. Mizuho has set a $69 price target, but the consensus target is slightly higher at $69.80. The stock closed on Thursday at $60.71.
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Investors looking to avoid single stock exposure can always purchase the iShares Trust Global Utilities (NYSEARCA: JXI) exchange-traded fund. While the yield is somewhat lower at 3%, the diversity of owning multiple top utility companies can help skew risk much lower.
The wild back-and-forth swings in the market at these nosebleed levels seem to indicate that some rough sledding could be coming our way. Getting some safety into portfolios now makes good sense.
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