2 Utilities for Yield-Hungry Investors

Travis Miller: With interest rates on the rise following the Fed's first rate increase in nearly a decade, we still think that there is good value in the utilities sector for investors looking for yield and stability.

We think the market already priced in the higher interest rates earlier this year. The sector is down 9% in 2015--one of the worst-performing sectors in the market.

What we like right now is the yield for yield-hungry investors. The sector average a 3.7% yield right now, nearly a 150-basis-point premium to the 10-year U.S. Treasury.

One of the utilities we like right now is Duke Energy (DUK). It trades at a 4.7% dividend yield, a hefty premium to the sector and to U.S. Treasuries. We also like its growth opportunities. We look at 5% earnings growth on $42 billion of capital expenditures planned during the next five years. Most of that is directed to environmental regulations and to converting coal plants to natural gas plants.

Another name we like is Southern Company (SO). It trades near our $46 fair value estimate with a hefty near-5% dividend yield. We also like its growth opportunities. We forecast 4% earnings and dividend growth in the next five years. Most of that is driven by the $25 billion of capital expenditures it has planned to build new nuclear plants and to build retrofits to meet environmental regulations.