Uncovering Undervalued Opportunities: A Neglected Market Segment with Attractive Yields for Income-Seeking Investors

Investors Can Find Bargains in the Utilities Sector

Income Opportunities in Utilities Stocks

Income-seeking investors can find a bargain right now in the utilities sector. Although utilities stocks are not having a good year in terms of returns, they generally offer safe dividends. The Utilities Select Sector SPDR Fund has lost nearly 5% so far in 2023, while the S&P 500 has gained 19%. This presents an opportunity for investors to scoop up cheap stocks in this sector and potentially earn income while waiting for a rebound. Additionally, utilities are considered a defensive play, especially amid lingering concerns about a potential recession.

Top Utilities Stocks with Strong Dividends

To identify the best utilities stocks with safe dividends, CNBC Pro screened for utilities in the utilities ETF that pay a dividend of 3.5% or more and have a dividend coverage ratio of at least 3. The dividend coverage ratio is a measure of a company's net income relative to the amount of dividends paid out to shareholders. Two strong options in the utilities sector are Dominion Energy and American Electric Power.

Dominion Energy

Dominion Energy, a power producer based in Richmond, Virginia, tops the list with a hefty 5% dividend yield. The company also has a cash dividend coverage ratio of 3.2 and 7.2% upside to the average price target, according to FactSet. While only 23.5% of analysts covering the stock rate it a buy, it presents a potential opportunity for investors. Dominion Energy is set to report earnings on Friday and its shares are down nearly 13% year to date.

American Electric Power

With a dividend yield of 3.4%, American Electric Power has the biggest upside to the average price target at 13.5%. Approximately 43% of analysts covering the stock rate it a buy. Last week, the Columbus, Ohio-based utility reported second-quarter operating earnings per share in line with analysts' estimates and reaffirmed its full-year earnings per share guidance. This demonstrates the stability of the company's operations and dividend potential.

Safest Dividend in the Utilities Sector

For those seeking the safest dividend in the utilities sector, NiSource is a strong contender. Headquartered in Merrillville, Indiana, just 35 miles from Chicago, NiSource has a cash dividend coverage ratio of 4.4 and a dividend yield of 3.6%. Furthermore, analysts predict an 11% upside to the stock's average price target. Three-quarters of analysts covering NiSource rate it a buy, indicating confidence in its performance. Keep an eye on the latest quarter results, expected to be released on Wednesday, for potential insights into the company's trajectory. In summary, the utilities sector offers income opportunities for investors seeking safe dividends. Despite the sector's underperformance this year, it presents a chance to buy stocks at a discount. Dominiion Energy, American Electric Power, and NiSource are top contenders in terms of attractive dividends and potential for growth. Investors should consider these stocks for long-term income and potential capital appreciation.

Conclusion: Utilities Sector Bargains and Implications for New Businesses

The utilities sector currently presents a unique opportunity for income-seeking investors to find bargains. Despite underperforming the broader market in terms of returns, utilities stocks offer safe dividends and are considered a defensive play, making them attractive during times of economic uncertainty. This analysis of the utilities sector can also provide insights for new businesses looking to navigate the investment landscape. For a new business operating in the utilities sector, the observation of bargain opportunities serves as a reminder of the potential for growth and income. It suggests that there is potential for new players to capture market share and offer competitive dividends to investors. Identifying the strong contenders in the utilities sector can provide valuable insights for new businesses looking to position themselves as viable investment options. Dominion Energy, American Electric Power, and NiSource are highlighted as top utilities stocks with attractive dividends and potential for growth. New businesses entering the utilities sector can consider these companies as benchmarks for success and learn from their strategies. Analyzing the cash dividend coverage ratios and dividend yields of these companies can help new businesses establish targets and ensure financial stability. It is essential for new businesses to closely monitor the latest earnings reports and performance indicators of established utilities companies like Dominion Energy, American Electric Power, and NiSource. By keeping an eye on industry leaders, new businesses can gain valuable insights into market trends, customer demands, and potential challenges. This knowledge can aid in making informed decisions and positioning the new business for success in a highly competitive sector. In conclusion, while the utilities sector offers income opportunities for investors, it also provides valuable lessons for new businesses. The availability of bargain stocks highlights the potential for growth and income within the sector, which can be capitalized on by new businesses. By studying established utilities companies and staying abreast of industry trends, new businesses can position themselves as attractive investment options and achieve long-term success. Article First Published at: https://www.cnbc.com/2023/07/31/this-corner-of-the-market-offers-yield-for-income-seeking-investors-.html