Don’t Focus on Utilities Stocks’ Low Dividend Yields
Morningstar · Laura Lallos ·
Growth driven by demand for data centers is the real story for the sector today.
Growth driven by demand for data centers is the real story for the sector today.
Laura Lallos: Welcome to Investing Insights. I’m your host, Laura Lallos, filling in for Ivanna Hampton this week. The Morningstar Utilities Index currently yields less than 3%, which is the lowest dividend yield for the utility sector in at least 40 years. Meanwhile, interest rates are approaching 5%, which is a 20-year high. That’s a big difference. What does it mean for investors who are considering utility stocks? Have opportunities dried up? Not so, according to a recent Morningstar report called Mind the Yield Gap. Joining me today is co-author Travis Miller. He’s a senior analyst covering utilities and energy stocks for Morningstar.
Thank you for being here, Travis. Should we be concerned about this yield gap between utilities and interest rates? In your paper, you noted that the last time we had such a big yield gap was right before the financial crisis in 2007. And then before that, there was a big gap before the tech bubble burst in 2000. Why has there been this correlation between utility yield gap and market crashes?
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