This was a nice 3-day weekend. The stock market was closed on Monday. I, however, had to work. But it has giving me extra time to look over my next stock pick. With my recent selections of Alcoa (AA) and American Airline (AAL), it is time to select a safer dividend stock. What dividend portfolio would be complete without a utility stock?
Utility Stock Monopoly
Utility stocks are a nice safe pick. While I do not expect a utility stock to double overnight, they have protected downside. For this, we are looking at electric utility stock. Utility stocks have a built-in moat around them. It cost too much money to build two set of power lines to every house. Because of this monopoly to most houses, they get rewarded with extra regulations. But they do have less concern with competition. And because more and more things need electricity, the demand will keep growing. A large future trend will be electric cars, more connected devices to the internet of things, and many others to come. So, this will protect our downside risk.
One advancement that could be a concern is solar panels. With them becoming more and more economical to manufacture, they will become more popular. While yes, ever house that installs solar panels will decrease demand from the electricity, I think that it will be overcome. A lot of the solar power houses will still not buy giant batteries needed to store electricity or buy enough of them to become 100% off the grid. This means they still need access to the grid. So there will still be some revenue from this and probably a flat fee to pay for the power-lines. And the electric companies are building solar panel farms. When a solar panel farm is built, it will decrease the need for coal, natural gas, and other raw materials to produce power. This will save cost in the future. While we probably still need solar panel pricing to come down in cost even more, it will be a growing trend that will probably benefit the electric companies.
Which Utility Stock to Pick?
So now we need to pick a utility company. A lot of investors choose to invest in utilities by investing in utility ETF’s. Three of the subjective best are Utilities Select Sector SPDR (XLU), Vanguard Utilities (VPU), and iShares US Utilities (IDU). The first and second biggest picks in all of these are Duke Energy (DUK). By buying their biggest holdings, I have access to the movement of these ETF’s without paying the extra management fees. And Duke Energy (DUK) is a member of the S&P 500. So, with them being the picks of all of these, it feels like a good way to pick a stable dividend utility stock. With a dividend yield of 4.5% and paying an increasing dividend for 11 years, it will be a nice addition to our stock list.
What We Bought
We bought 4 shares for $300.56 including commission. This will add $13.20 a year to our yearly dividend money making machine. While giving us a small payment now, this can increase in the future. And as this is our 1st pick in utility stocks, this will increase our diversification.
What dividend utility stock do you like? Please feel free to share below.
- AA, AAl, DUK – We own Shares
- XLU, VPU, and IDU – We do not own shares