Investing in utilities?

Question

I'm thinking of investing in public utilities to diversify my portfolio. Are public utilities still a good way to diversify? Anybody with current experience, pros and cons would be good. Thank you.

Answer 1

Guru i'll give you props for a good question (not a star but a commednable question) Utilties thrive in ANY market condition while there are several worthy single stocks (Duke Energy, Hawaii Electric etc..) I am in a portfolio challenge and I bought the ETF spiders select utilty fund or XLU I "bought" it back on Jan 3rd and as of this night it is up 15.66%. Utilties everyone needs and most of them has a very nice dividend to boot. I would take a serious look at XLU and snap it up on a significant drop. And there are huge mergers in utilties going on as well. One sigificant drop and get in.

Answer 2

Go for an ETF or mutual fund which targets 'utility' stocks. This way, you're diversified among a broad range of utility companies. Although targeting a specific segment is still riskier than investing in the broader market, at least you'll be invested in a group of stocks vs. 1 (or just a couple).

Answer 3

Once upon a time utilities were a cash cow for investors. In many places, government regulation made them protected monopolies. With deregulation, there are no cost-plus profit protection or other such measures, or at least not nearly as lucritive.

Watch that your utility (1) makes a profit; (2) pays a fair dividend; (3) makes a profit well above its dividend; and doesn't carry too much debt. Then pick your poison--are they (in the case of electric power) fueled by gas, coal, or nuclear (or what mix of the above). Then watch the news on those fuels--a coal-fired plant will be disavantaged when prices of natural gas rise, or environmental rules on coal change, or the price of uranium continue to shoot through the roof.

Picking a good one is complicated, but there are several solid and well-managed companies. Original Dow theory was that if the industrials tanked, then one's holdings of transportations and utilities would rise and average-out your losses in the industrials, and vice versa. It tends not to hold true today. Still a good, solid company that pays dividends is almost like a printing press for money.

Answer 4

XLU and other ETFs in utilities might be a wise choice in this area. ETFs trade like stocks, you can play options, make stop loss order etc. but they are a basket of like stuff, in this case stocks of different utility companies. If one utility crashes and burns (literally in the case of Three Mile Island), you will have other utilities to buffer any short term loss.

Answer 5

Check out utility sector funds. They're doing real well this year.