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3 Utility Names With Powerful Dividend Yields

Duke, Southern Company, and Edison look promising for income-seeking investors.

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Travis Miller: Utilities are often considered a place of safety for investors. That wasn't always the case in March and April as the markets took their turbulent run. The one thing that was a place of safety for utilities was the dividends, and especially the dividend yields for utilities right now. When you look at where bond yields are, and especially U.S Treasury rates right now, with utilities' dividend yields above 3% for the sector, that's a very attractive spread for income investors right now investing in utilities. We think that the utilities in the U.S. are well positioned to affirm and even grow their dividends over the next few years. Names like Southern Company (SO), Duke Energy (DUK), and Edison International (EIX) all trade at yields above 4%, and at or below our fair value estimates.

For Edison International, with a yield over 4% right now, we think it has also great growth opportunities being a utility in California, trying to invest in infrastructure to support the state's 100% renewable energy goal. For Duke and Southern Company, again, both yielding over 4%, we think they have growth opportunities in the Southeast as these large utilities invest in infrastructure to support some population growth, but also a lot of new renewable energy growth. We think utilities are a good place for income-seeking investors, both because of the attractive yield relative to other yield investments, such as bonds and even U.S. Treasuries. And we also think there's still growth, and we see very strong balance sheets that are going to support the dividend and that growth over the next three to five years.

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