Utility yields premium is dissipating

Inflation has started to erode the competitiveness of the utilities sector's dividends. For the first time in at least 30 years, utilities' inflation-adjusted dividend yield has turned negative.

While yields are still attractive at a median of 3.1% compared with the rest of the market, the sector’s yield premium is dissipating. Utility yields had as much as a 200-basis-point premium to the 10-year U.S. Treasury in August 2021. That has fallen to 29 basis points as of April 28, the smallest since November 2018.

S&P 500 industry extremes are due for reversal

Last quarter’s worst and best performers among U.S. industry groups are poised for a reversal, according to Dhaval Joshi, BCA Research Inc.’s chief strategist. Joshi recommended buying utility stocks and betting against real-estate shares in a report Thursday. Utilities were the only one of the S&P 500 Index’s 11 main industry groups to post a loss last quarter, according to data compiled by Bloomberg. Their index’s 1.1% drop contrasted with a 12.3% gain for the S&P 500 Real Estate Index, which scored its first quarterly win since joining the other 10 categories in 2016.

S&P utility payouts offer more than some high-yield debt

Income-oriented investors might be better off with U.S. utility stocks than high-yield bonds these days. That’s because the dividend yield on the S&P 500 Utilities Index has exceeded the yield on the Bloomberg Barclays Ba High-Yield Index since December, according to data compiled by Bloomberg. The swing to utility stocks from near-investment-grade debt was the first since calculations of S&P’s industry gauge began in 1989. Friday’s yield gap favored utility shares by more than 0.4 percentage point for the first time.

Record-low Treasury yield gives S&P 500 utilities more appeal

Utility stocks have more to offer income-seeking investors now that the yield on 10-year Treasury notes has set a record low. The S&P 500 Utility Index’s dividend yield surpassed the Treasury yield by more than 200 basis points Tuesday, when the latter fell below 1% for the first time, according to data compiled by Bloomberg. The yield gap rose above the threshold Friday for the first time since June 2013, and then narrowed Monday as stocks rallied. Utility and 10-year yields diverged after coming within 8.5 basis points of each other in November 2018. Each basis point equals 0.01 percentage point.

Record P/E gap leads UBS into health care over utilities

Investors have more reason than ever before to play defense in health-care stocks rather than utilities, according to UBS Group AG. Strategists at the firm compared the industry groups’ forward price-earnings ratios, based on profit projections, in a report Monday. The S&P 500 Health Care Index’s forward P/E dropped as much as 29% below the ratio for the S&P 500 Utilities Index during October, according to data compiled by Bloomberg that goes back to 1990. The discount was the biggest on record.

Higher dividends make U.S. banks look like utility stocks

Banks emerged as an alternative to utilities for income-seeking stock investors even before the largest U.S. lenders passed the Federal Reserve’s stress tests. The projected dividend yield on the KBW Bank Index surpassed the yield on the Dow Jones Utility Average a week ago for the first time since February 2009, according to data compiled by Bloomberg. The milestone was reached three days before the release of the test results, which led 13 of the 24 companies in KBW’s index to raise dividends or say they will consider doing so. “Move over, utilities,” Mike Mayo, a Wells Fargo & Co. bank analyst, wrote in a note.

S&P 500 utility stocks lack power as Treasury alternative

Investors seeking a haven in U.S. utility stocks stand to gain relatively little by comparison with going into Treasury securities. The gap between the S&P 500 Utilities Index’s dividend yield and the 10-year Treasury note yield stood at 0.84 percentage point as of Monday, according to data compiled by Bloomberg. That’s well below the average spread of 1.37 points since the S&P 500 Index entered a bull market in March 2009. To be sure, the gap shrank to less than 0.1 point last November, when it reached the lowest level since 2008.

Will U.S. bond yields climb? Not if stocks are any guide

Some of the most interest-rate-sensitive U.S. stocks are signaling that bond yields won’t move up any time soon, according to Renaissance Macro Research LLC. The firm cited a chart created by Michael Guttag, a managing director, in a Twitter post Tuesday. Guttag compared a ratio of bank and utility stocks within the S&P 1500 Composite Index -- consisting of all the shares in the S&P 500, MidCap 400 and SmallCap 600 indexes -- with the yield on 10-year Treasury notes. The ratio peaked in March of last year and then dropped 28 percent through Tuesday. “We’re not banking on higher yields,” Renaissance wrote.

Utility stocks, Treasuries going their separate ways

Remember how U.S. utility stocks and bond yields were joined at the hip? Not anymore. The S&P 500 Utilities Index rose more than 10 percent from a low on Nov. 14 through Thursday, a period when 10-year Treasury notes languished near post-election lows. The industry gauge is likely to challenge a record set in July, Ralph Acampora, a technical-analysis pioneer and an instructor at the New York Institute of Finance, wrote in a Twitter post Thursday.

Utility leadership shows more U.S. stock risk

This year’s market-leading performance of U.S. utility stocks is a sign that the risk of losses is increasing, according to Charlie Bilello, director of research at Pension Partners LLC.

• Charlie Bilello on Twitter

The Standard & Poor’s 500 Utilities Index ended yesterday’s trading with an 8.4 percent gain for 2014. The increase was the biggest among the 10 main industry groups in the S&P 500, which rose 2.2 percent.

“The wide outperformance of the utilities sector on a year-to-date basis is certainly alarming,” Bilello wrote in a posting yesterday on his firm’s blog. Lower prices and greater volatility may be in store, the New York-based analyst wrote.

     Utilities have been the top-performing S&P 500 group in three quarters since the current bull market started in March 2009. They came out on top in the second quarter of 2010, when the index fell 12 percent, and the third quarter of 2011, when it dropped 14 percent. Last quarter, they ranked first as the S&P 500 rose 1.3 percent.

     The current strength in utility stocks makes them a better investment than the S&P 500, Bilello wrote. He recommended them as part of a strategy of switching between the industry and the index that he developed with Michael Gayed, Pension Partners’ chief investment strategist.

     This “beta rotation strategy,” as they called it, was outlined in a paper that won the Charles H. Dow Award from the Market Technicians Association this week. The award, named for a co-founder of Dow Jones & Co., is given to recognize excellence and creativity in technical analysis.