Monday, October 25, 2010

What Sector has Significantly Outperformed the S&P 500 Last 6 Months

There is one investment sector that has significantly outperformed the S&P 500 during the last six months, and for that matter, outperformed over the last five years. You may be surprised to hear that this sector has previously been considered an income investment, not a growth investment. If you haven't guessed it by now, the sector I am referring to is utilities. That's right, the sector that includes such companies as American Electric Power (AEP), Dominion Resources (D), Edison International (EIX), and Southern Company (SO), all components of the Dow Jones Utility Index.

Over the last six months, the Utility Index was up about 5.2%, whereas the S&P 500 was down by 2.4%, a 7.6 percentage point difference. And if you compare the two indexes over a five year period, the utilities outperformed the S&P by four percentage points. The best feature about utility stocks is the high yield that many generate. For example, according to the recently updated list of high yield electric utility stocks at, there are over 30 that pay a dividend in excess of 4%.

As an example, Consolidated Edison Inc. (ED), the utility that serves New York City and Westchester County, yields 4.8% and sports a forward PE ratio of 14. Total dividend payouts of $672.6 million are very well covered by the company's operating cash flow of $1.82 billion.

Another high yielder on the list is Ameren Corporation (AEE), which serves Illinois and Missouri. The stock pays a 5.3% yield and trades at 12 times forward earnings. Total dividend payouts of $368.4 million are extremely well covered by the company's operating cash flow of $1.88 billion.

To see the rest of the high yield electric utilities, you can get a free list, which can be downloaded, changed, and updated, at

Disclosure: Author didn't own any of the above at the time the article was written.


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