The Lead-Lag Report: You Can’t Ignore Utilities
Investors looking for safe income have shifted heavily into U.S Treasury bonds over the past two years. With the 10-year Treasury bond yielding about 4%, it offers about half the historic return of the stock market. But it does so with none of the risk of investing in stocks.
However, yields are on track to trend lower. While the Fed started with a half-point cut, it’s likely to follow up with quarter-point cuts.
Over time, that will still drive yields down. That means investors may have to look elsewhere for income. And utility stocks can fit that niche of safe, relatively high-income right now. Even better, utility stocks also offer some growth potential here.
That’s because utilities are usually slow-growth plays. But the rise of AI technologies means an increased demand for power. And the need for stable base power to ensure that technologies like electric vehicles can function smoothly.
That could mean bigger growth, and also offers the potential for growing dividends.
Investors have plenty of options from individual utility stocks like Next Era Energy (NEE), operating in the fast-growing Florida market, to the Utilities Select SPDR Fund (XLU) to grab the industry as a whole.
Either way, utilities still offer investors a relatively high income, a reasonable value now, and growth potential.