Utility stocks can best be described as the four-door, mid-sized sedan of equity investing: boring. Nothing sexy about them — they get you from point A to point B. Investors own utilities for the steady, above-average dividends just as people buy bland, mid-size sedans because they need something that just works. But sometimes both can seem overpriced. In 1987, the base price of a new, Honda Accord was around $9,795. Today, that base price is around $22,455, which implies an annual price increase of 4.3%; 33.5% more than the average annual inflation rate of 3.22% for the same time period. Read More
Utility stocks can best be described as the four-door, mid-sized sedan of equity investing: boring. Nothing sexy about them — they get you from point A to point B. Investors own utilities for the steady, above-average dividends just as people buy bland, mid-size sedans because they need something that just works. But sometimes both can seem overpriced. In 1987, the base price of a new, Honda Accord was around $9,795. Today, that base price is around $22,455, which implies an annual price increase of 4.3%; 33.5% more than the average annual inflation rate of 3.22% for the same time period. So, while that mid-sized sedan may still seem like a bargain, it’s gotten slightly more expensive over the longer haul. Utility stocks also outperformed inflation during a similar run. The average yield of utility stocks over the last 25 years has been 3.96% while inflation has averaged around 2.11% for the same period. Over the long haul, dividend paying-utility stocks delivered exactly what they should which is to keep pace with inflation. But sometimes utility stocks, like that boring sedan, can look expensive. The sector has been dealing with this recently. After a post-election dip that coincided with… Read More