Close Menu
Invest Intellect
    Facebook X (Twitter) Instagram
    Invest Intellect
    Facebook X (Twitter) Instagram Pinterest
    • Home
    • Commodities
    • Cryptocurrency
    • Fintech
    • Investments
    • Precious Metal
    • Property
    • Stock Market
    Invest Intellect
    Home»Stock Market»These Are The Last 2 Cheap Utility Dividends
    Stock Market

    These Are The Last 2 Cheap Utility Dividends

    August 28, 20246 Mins Read


    HOUSTON, TEXAS – FEBRUARY 21: A view of high voltage transmission towers on February 21, 2021 in … [+] Houston, Texas. Millions of Texans lost their power when winter storm Uri hit the state and knocked out coal, natural gas and nuclear plants that were unprepared for the freezing temperatures brought on by the storm. Wind turbines that provide an estimated 24 percent of energy to the state became inoperable when they froze. (Photo by Justin Sullivan/Getty Images)

    Getty Images

    If you’ve been watching utility stocks over the last few months, you might think our chance to buy these big dividends is history.

    It’s not: There are two still sweet utility deals on the board, offering both high dividends (up to 7%) and steadily growing payouts. Why are these bargains still available? We’ll get to that shortly.

    First, let’s talk about why utilities have been at the top of our buy list this year: When interest rates fall, “utes” fly.

    Most people see utilities as bond proxies, which is why they got crushed when rates spiked in ’22. Why bother with even low-volatility utilities when you can get a guaranteed near-5% payout from a 2-Year Treasury?

    But when rates fall, and that sweet Treasury income is off the table, people come running back to utilities. The result can be some shockingly big moves for a normally mellow sector. Consider American Electric Power (AEP), which we bought in the February issue of my Hidden Yields service.

    Man, a lot has changed since then.

    Back in late February, we’d just gotten a hotter-than-expected CPI report, and the inflation boogeyman returned. The media fretted that, after all those rate hikes, the Fed would fail to “stick the landing,” as Bloomberg cleverly stated:

    Headline

    Bloomberg

    We didn’t buy it. The Fed clearly had rates in restrictive territory, so it was a question of when, not if, inflation would drop.

    Six months on, inflation is at 2.9%, the high end of the Fed’s target range. And Jay Powell flat-out told us rate cuts are now ahead from the Fed’s Jackson Hole confab on Friday. And the so-called “long rate”—the yield on the 10-year Treasury note, has dropped from 4.3% to around 3.8% as of this writing.

    American Electric? It’s up a tidy 22.7%—a titanic move for a utility. Plenty of utilities have done the same, and to be honest, we see most as holds now (including AEP). But as I said, there are still a couple that have been overlooked.

    The first one is a US firm with considerable operations beyond America’s borders. The other is a telecom stock based in Canada—a country where just three companies rule the wireless roost. And Canadians, like Americans, are not going to cut their cell phone use, recession or no.

    Utility Bargain No. 1: AES Corp. (AES)

    AES Corp. yields 3.9% as I write this, and its dividend does what you’d expect from a steady-as-she goes business like this: It steadily grinds higher.

    Check out the slow ’n’ steady staircase of payout hikes over the last nine years (through rising rates, falling rates and the pandemic), as well as the effect that payout growth has had on the share price.

    TU Dividend USD

    Ycharts

    Just like a poorly behaved dog on a leash, the stock price (in orange) sometimes jumps ahead of the payout and sometimes falls behind. But ultimately it comes right back to the purple line. Right now it’s behind—a sign that AES is undervalued.

    You can also see in the chart above that AES is well off its recent peak, which it hit in May, even though 10-year Treasury rates have dropped since.

    That may be because AES operates in a number of markets beyond the US, such as Brazil, Mexico, the Netherlands and the UK, making it a bit harder for first-level investors to value than a purely domestic player like, say, Duke Energy (DUK) or Southern Co. (SO).

    Investors may also still be smarting after being clipped by the “dollar bulldozer”: the high greenback of the last few years. But lower rates will weigh on the buck, making AES’s sales worth more. We’ve already seen it soften this summer.

    AES is also targeting growth in renewable energy, with 56% of its 35,632 megawatts in operation coming from hydro, solar, wind and landfill gas, as well as the battery capacity needed to store power from those sources.

    That’s just plain smart, business-wise: According to a 2023 study by the International Renewable Energy Agency (IRENA), 86% of renewable capacity that came online in 2022 was cheaper than fossil fuel–generated power.

    Moreover, AES continues to position itself as a leading electricity provider for data centers, which are feeding the power-hungry development of AI.

    In the second quarter, for example, management said it signed agreements for 1.2 gigawatts to power data centers and is in talks for three more gigawatts.

    Plenty of pundits have been touting utilities as a “back door” play on AI. To be honest, I’m a skeptic: Interest rates are a far bigger driver for utility stocks. But it is still nice to see AES going after this growing source of demand.

    Utility Bargain No. 2: Telus Corp. (TU)

    Canadian telco Telus Corp. (TU) yields 7% as I write this. But if you look at its dividend chart, it’s not nearly as steady as AES’s staircase:

    TU Dividend

    Ycharts

    Nope, this is not a series of random cuts and hikes. It’s entirely due to currency fluctuations (Telus, by the way, conveniently trades on the NYSE under the TU symbol). But a lower US dollar means the Canadian “loonie”—slang for their currency—would convert to more greenbacks for us.

    And when you look at the dividend in Canadian currency (along with the direction of the share price) you see that Telus’s “Dividend Magnet” was keeping the stock moving up until interest rates (in the US and Canada) spiked in 2022, sending the shares tumbling.

    TU Price/Dividend CAD

    Ycharts

    Now that rates are set to become a tailwind (the Bank of Canada has already cut twice and will likely do so again in September), I expect that share price to trend back up.

    Beyond that, Telus benefits from the fact that the Canadian cellphone market is essentially an oligopoly, with Telus, BCE Inc. (BCE) and Rogers Communications (RCI) controlling a bit less than 90% between them. That state of play has existed, more or less, for years (with slightly more of the market going to regional carriers these days).

    That gives these firms stable revenues to fuel their dividends. Telus, with its tighter focus on wireless and home Internet access, is also profiting from the rapidly growing Canadian population, as management noted in its second-quarter earnings report.

    Finally, lower rates will help cut borrowing costs in the long run, and make the company’s high-yielding (and growing) payout more attractive to income-seeking investors.

    Brett Owens is Chief Investment Strategist for Contrarian Outlook. For more great income ideas, get your free copy his latest special report: Your Early Retirement Portfolio: Huge Dividends—Every Month—Forever.

    Disclosure: none



    Source link

    Share. Facebook Twitter Pinterest LinkedIn Tumblr Email

    Related Posts

    New investors additions in Indian stock market decline by 18% m-o-m in August due to tariff shocks: NSE Report

    Stock Market

    New to the Stock Market? Here’s the No. 1 Investing App I Recommend to Everyone

    Stock Market

    Microsoft CoPilot Does Not Improve Productivity And ChatGPT Projects Are Free

    Stock Market

    Best Dividend Stocks To Buy And Hold For Steady Income

    Stock Market

    Blind man told GCSE computing would be too hard earns degree

    Stock Market

    Ex-date Dividend Stocks This Week: Bharat Dynamics, Mazagon, RITES, Godfrey, SJVN In Focus | Markets News

    Stock Market
    Leave A Reply Cancel Reply

    Top Picks
    Commodities

    Austin Energy asks SW Austin to conserve after Thursday power outage

    Investments

    InvestKL targets RM50bil investments by 2030

    Investments

    Deux nouveaux ETF thématiques actifs chez Aberdeen Investments

    Editors Picks

    Could Investing $7,500 in Some Dividend ETFs Make You a Millionaire?

    June 18, 2025

    Akshaya Tritiya 2025: Best Investments To Make On This Auspicious Day

    April 27, 2025

    Cryptocurrency UX in Asia: How wallets adapt to the next billion users

    May 19, 2025

    BDF Reaches 7 Million Clients, Solidifying Its Position in Digital Finance

    October 24, 2024
    What's Hot

    Renters need extra £398k in retirement

    August 27, 2025

    Top 3 Coins Under $0.10 To Stash For Major Nov’ Gains

    October 28, 2024

    Lyon 9e. Chez Gac Technology, on soigne l’intégration des nouveaux 

    February 3, 2025
    Our Picks

    New Cryptocurrency Releases, Listings, & Presales Today – JuChain, Ceylon, Zentium Tech

    July 9, 2025

    Comment lire la nouvelle étiquette énergie pour les smartphones

    June 20, 2025

    Twisted Metal star teases Anthony Carrigan’s “sexy” take on villain

    August 1, 2025
    Weekly Top

    New investors additions in Indian stock market decline by 18% m-o-m in August due to tariff shocks: NSE Report

    September 14, 2025

    Texas shifts to metal plates to prevent fraud, improve road safety

    September 14, 2025

    Solving the pre-retirement conundrum: Protecting your life’s work without missing growth

    September 14, 2025
    Editor's Pick

    A gold bar is now worth $1 million

    August 20, 2024

    Canadian Utilities Second Quarter 2025 Earnings: Misses Expectations

    August 3, 2025

    NOVEN GROUP INFRA et VERSO ENERGY signent un accord de partenariat en faveur du développement des carburants de synthèse

    February 21, 2025
    © 2025 Invest Intellect
    • Contact us
    • Privacy Policy
    • Terms and Conditions

    Type above and press Enter to search. Press Esc to cancel.