The strong start to 2020 for utilities extended a run of outperformance for the sector that began in 2018.
The utilities sector gained 6.61% in January, far surpassing the S&P 500, which finished down 0.2% for the opening month.
Signage is displayed at the FirstEnergy Corp. Bruce Mansfield coal-fired power plant in Shippingport, Pennsylvania.The best two sectors so far this year are the fast-growing tech sector and stodgy old utilities, continuing an odd race that has been going on for more than 18 months., which finished down 0.2% for the opening month. Technology was the next closest sector at 3.89%, and pulled ahead of the utilities for the year with a strong start to February.
The low-interest rate environment has given utility stocks, which on average have a dividend yield of about 3%, a healthy premium to 10-year Treasurys rates and other low-yield fixed income assets, said Chris Gaffney, president of world markets at TIAA Bank. With the cost of debt, fuel and taxes all declining, and the companies becoming more efficient with their labor force, the utilities have taken advantage of cheaper costs as an opportunity to increase that capital base, Karp said. Utilities can go to regulators and argue to keep billing levels the same from the perspective of customers and invest the extra money in upgrades, leading to higher returns to shareholders.
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