4 Utility Stocks That Value Investors Can Buy In 2020

Every investor is a value investor by nature, as they try to buy stocks at lower prices and sell those off at higher rates, resulting in value additions to their investments. The concept of accumulating solid stocks at lower prices is in sync with the idea of investing in utility stocks.  Investing in value stocks and utility stocks has one thing in common — both provide returns to the investors over the long term.  

Return from the Utilities sector over the past decade has been 17% — significantly lower than the Zacks S&P 500 Composite’s 191.9%. Despite their lower returns, when compared with Zacks S&P 500 Composite peers, utility stocks are considered as safe investment options, owing to the ability to provide steady performance irrespective of economic cycles and pay regular dividends to shareholders. The sector’s dividend yield over the past decade has been 3.2%, outperforming the Zacks S&P 500 Composite’s 1.73%.

Demand for water, gas and electricity does not vary much during the economic cycles, which provide stability to utility stocks’ earnings. In addition, government regulations and huge investments required for entry make the space lesser competitive than other sectors. These factors have been aiding the stability of utilities’ operations.

These capital-intensive utilities benefited from the Fed’s July rate cut. The following two rate cuts further enabled the sector to source funds at cheaper interest rates and create more cash flows. At present, the rate stands in the 1.5-1.75% band.

Utilities have been gradually shifting their focus to cleaner generation and storage projects, as well as have been educating customers to lower their utility bills without compromising on energy usage. On a whole, a steady transition to renewable generation is noticed in this space, as the companies are aimed at lowering generation-related emissions.

Amid such favorable trends in the utility space, we can suggest few utility stocks for value investors, which are undervalued at the current share price levels and are the best options to buy for 2020.

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