STT State Street Corporation

By Asjylyn Loder 

With interest rates poised to fall, investors are hunting for a way to squeeze a little more profit from their portfolios.

One popular refuge is staid utility stocks, which pay a steady stream of reliable dividends. But in an unusual twist, there is a better dividend payout from an unexpected source: risky energy companies.

The dividend yield on State Street Corp.'s Energy Select SPDR exchange-traded fund is running about 3.4%, beating the 3.1% yield on the Utilities Select SPDR fund for only the second time in a decade.

"Utilities are slow, stodgy companies that tend to maintain a dividend. Because they're regulated, their earnings are stable," said Todd Rosenbluth, head of fund research for CFRA. "Energy is the opposite of that."

The reason for the yield reversal is hidden under the hood of the energy ETF. Yes, its portfolio includes laggards like Noble Energy Inc. and Concho Resources Inc., whose stock prices have fallen sharply in the past year.

But its two biggest holdings are Exxon Mobil Corp. and Chevron Corp., which together account for more than 40% of the fund's investments. The two oil majors deliver such reliable dividends that they've even earned spots in the ProShares S&P 500 Dividend Aristocrats ETF, which restricts its roster to firms that have increased their dividends for at least 25 consecutive years.

Still, dividend yield is just one consideration. In the past year, the energy ETF has lost almost 13% while the utility fund has returned nearly 20%, handily beating the 10% gain of an S&P 500 ETF.

"If you're seeking income, the energy sector is more appealing place than it has historically been," said Mr. Rosenbluth. "But that comes with risk."

(END) Dow Jones Newswires

July 11, 2019 12:55 ET (16:55 GMT)

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