Utility Stocks: There’s No Need to Chase This Rally

Suddenly, utility stocks have come into vogue. The Utilities SPDR (XLU) has generated a total return of 4.3% so far in 2014, trouncing the -1.4% showing for the SPDR S&P 500 ETF (SPY) and second only to healthcare among the 10 major sectors. Many of the largest utility stocks — such as Dominion Resources (D), NextEra Energy (NEE) and Exelon (EXC) — have generated even stronger returns, as shown in the table below.

This rebound is undoubtedly welcome relief to investors in utility stocks, who largely watched from the sidelines during the bull market of 2013. Unfortunately, the primary drivers of the recent outperformance aren’t fundamentals, but rather broader trends that might not be sustainable. Utility stocks still provide the largest dividend yield of any sector in the market, and in that sense they remain a compelling play for longer-term, income-oriented investors. For now, however, there’s no need to rush into this sector — the market will almost certainly provide patient investors with a more favorable entry point before long.

Source: InvestorPlace

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