MENU

Are utility companies still defensive?

Utility companies used to be seen as some of the safest companies to own on the ASX.

Households must pay their bills or else they will be without heating, electricity and telecommuncations. Therefore, it might be easy to say that Telstra Corporation Ltd (ASX: TLS), TPG Telecom Ltd (ASX: TPM), Vocus Group Ltd (ASX: VOC) and AGL Limited (ASX: AGL) offer investors some of the most defensive earnings on the ASX.

However, the last year has not been good for most of the above companies. Over the last twelve months:

Telstra shares have declined by 18%

TPG shares have declined by 53%

Vocus shares have declined by 58%

AGL shares have increased by 37%

The key thing to remember about the share market is that share prices won’t always be as calm or consistent as earnings and dividends.

TPG has a flawless record of increasing its earnings per share for each of the past eight years, yet the share price has been like a rollercoaster.

It’s important to remember that there are risks with every business and industry. The NBN is changing the telco industry. Global energy prices can swing dramatically year to year, affecting energy retailers.

Time to buy any utility companies?

Of the four I’ve mentioned I think TPG looks like the best buy whilst it’s trading at 12x FY17’s estimated earnings with a grossed-up dividend yield of 3.96%. I think its growth plans with mobile offerings in Australia and Singapore could be a good way to grow the business over the next decade.

Telstra may be the best for dividends in the short-term and Vocus may receive a higher takeover offer, but I’d want both share prices to be 10% lower for a margin of safety before I’d consider buying.

However, at the current prices I would consider buying these growth shares that should give investors far more growth than utility companies.

Top 3 ASX Blue Chips To Buy In 2017

For many, blue chip stocks mean stability, profitability and regular dividends, often fully franked..

But knowing which blue chips to buy, and when, can be fraught with danger.

The Motley Fool's in-house analyst team has poured over thousands of hours worth of proprietary research to bring you the names of "The Motley Fool's Top 3 Blue Chip Stocks for 2017."

Each one pays a fully franked dividend. Each one has not only grown its profits, but has also grown its dividend. One increased it by a whopping 33%, while another trades on a grossed up (fully franked) dividend yield of almost 7%.

The names of these Top 3 ASX Blue Chips are included in this specially prepared free report. But you will have to hurry. Depending on demand - and how quickly the share prices of these companies moves - we may be forced to remove this report.

Click here to claim your free report.

Motley Fool contributor Tristan Harrison has no position in any stocks mentioned. The Motley Fool Australia owns shares of Telstra Limited, TPG Telecom Limited, and Vocus Communications Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss a very important event! Chief Investment Advisor Scott Phillips and his team at Motley Fool Share Advisor are about to reveal their latest official stock recommendation. The premium “buy alert” will be unveiled to members and you can be among the first to act on the tip.

Don’t let this opportunity pass you by – this is your chance to get in early!

Simply enter your email now to find out how you can get instant access.

By clicking this button, you agree to our Terms of Service and Privacy Policy. We will use your email address only to keep you informed about updates to our website and about other products and services we think might interest you. You can unsubscribe from Take Stock at anytime. Please refer to our Financial Services Guide (FSG) for more information.