Year-to-date, the Utilities ETF (NYSEARCA:XLU) has appreciated 21% and the big two telecoms, AT&T Inc. (NYSE:T) and Verizon Communications Inc. (NYSE:VZ), have also appreciated more than 20%. Those are amazing returns especially including the above-average dividend yields utilities and telecoms typically offer.
However, with the bid up prices, it has become riskier to invest new money in utilities and telecoms.
The top five utilities in the XLU are all overvalued, including NextEra Energy Inc (NYSE:NEE), Duke Energy Corp (NYSE:DUK), Southern Co (NYSE:SO), Dominion Resources, Inc. (NYSE:D), and American Electric Power Company Inc (NYSE:AEP).
Reversion to the mean can happen for any of these utilities that are overvalued, and it could mean negative returns in the short term. Read More
The S&P 500 that represents the U.S. market is near an all-time high which might make stock investors nervous, especially when the market has been trading sideways. What should stock investors do? The short answer is to ignore the market and focus on individual companies. The long answer will come later in this article.
The S&P 500 has been trading in a sideways channel since August 2015. Right now, NYSEARCA:SPY is back at the top of the channel, and if it doesn’t break above the US$208 resistance persistently, it will head back down. If SPY falls past the US$185 support persistently, this will mark the top of the market for the time being.
SPY Weekly Chart
Investors have been piling on to the consumer staples and utilities as the select ETFs have been hitting new highs. See the Consumer Staples ETF (NYSEARCA:XLP) and Utilities ETF (NYSEARCA:XLU) charts below.
Consumer Staples ETF Weekly Chart
Utilities ETF Weekly Chart
Both the Consumer Staples ETF and Utilities ETF look like they’re losing steam as they hit or are near overbought territories. Read More
Want to create a secure, growing income stream from your dividend stock portfolio? What are the characteristics of the safest dividends? Investors buy dividend stocks for the stable income. So, it’s essential to choose stocks that generate safe, growing dividends.
The characteristics for the safest dividends include:
culture of increasing dividends, and
conservative payout ratio
Stable Business. Stable Earnings.
Behind each stock that pays a dividend is a business. If the business is not profitable, it cannot pay healthy dividends. Which sector or industry is the business in? The type of the business helps us determine whether a business’s earnings are stable or not.
For example, consumer staples and utilities typically generate very stable earnings because there’s a consistent demand for their needed products and services no matter how the economy is doing.
On the other hand, businesses whose profitability rely on commodity prices can fall hard in price. Many energy companies have cut their dividends in this oil rout.
Look at Crescent Point Energy Corp (TSX:CPG)(NYSE:CPG) and Canadian Oil Sands Ltd (TSX:COS) as examples. In 2015, they slashed dividends by 57% and 86%, respectively. What did you expect? Both are expected to earn negative earnings in fiscal year 2015.
There’s a similar situation with regards to falling earnings for the miners such as Teck Resources Ltd (TSX:TCK.B)(NYSE:TCK) and BHP Billiton plc (ADR) (NYSE:BBL)(NYSE:BHP). Falling earnings have led to falling prices for energy companies and mining companies alike. Read More