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Stock Strategist

Steer Clear: Utility Dividends on the Chopping Block

We sift out the safe from the unsafe.

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The utility sector is fast losing its luster as a reliable income-producer. Although utilities as a group raised dividends in 2008, recent announcements indicate an abrupt reversal of this trend. Three major firms-- Great Plains Energy (GXP),  Ameren (AEE), and  Constellation (CEG)--have announced dividend cuts as the twin forces of tight credit and deteriorating demand drain capital from their coffers. While we don't believe these cuts will devolve into a sectorwide event, we are concerned there are more reductions to come.

In this piece we'll discuss whose payouts may be in peril and why. We'll also cite a few standout utilities that, despite current economic head winds, could actually raise their dividends in the quarters ahead.

Ryan McLean does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.