Investors Finding Dividends in an Unlikely Place: Energy
July 11 2019 - 5:16PM
Dow Jones News
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 have 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 more than 12% 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."
In fact, the lackluster performance of energy stocks combined
with gains for utilities is a big part of the reason why yields
have flipped, said Shahriar Pourreza, a managing director at
Guggenheim. The yield is calculated by dividing the dividend per
share by the stock price. The demand for utility stocks from
risk-averse investors has driven prices higher, sending yields
down, he said.
"The reason the yield is lower than you would think is because
utilities are popular," Mr. Pourreza said.
Write to Asjylyn Loder at asjylyn.loder@wsj.com
(END) Dow Jones Newswires
July 11, 2019 17:01 ET (21:01 GMT)
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