Utility stocks generally provide investors with a high level of stability in terms of earnings and dividends. In fact for many years utilities were considered one of the few sectors "safe" for conservative investors to invest in. This is because of the essential nature of their services; the public is dependent on uninterrupted supply of critical services such as electricity, water and gas.
What's more, consumer preference and demand for these services rarely changes is consistent from year to year. For example if people like to take a hot shower every day then they require energy to heat the water each day. The public isn't about to suddenly switch on mass and decide a hot shower one day, followed by a cold one the next is more desirable.
This consistency in demand for services from utilities makes the revenues of utility stocks consistent as well, and a good sector for investors seeking a dependable and regular dividend payment. However, as many utility stocks pay unfranked dividends, investors will need to consider their personal tax situation in determining the after tax yield they receive.
1. APA (ASX: APA) owns and operates a number of critical energy infrastructure assets. These assets include gas transmission pipelines across Australia that deliver around half of the nation's gas. The $5.1 billion company currently trades on a trailing dividend yield of 5.8% unfranked.
2. Envestra (ASX: ENV), like APA, is involved in the transmission and distribution of gas through its network of owned and managed pipelines. The company has a market capitalisation of $2 billion and a trailing yield of 5.7% unfranked.
3. SP AusNet (ASX: SPN) operates Victoria's primary electricity transmission and distribution network. The firm is currently selling on a trailing yield of 6.7% partially franked and has a market capitalisation of $4.2 billion.
4. Spark Infrastructure (ASX: SKI) holds interests in electricity distribution networks in both Victoria and SA. The company has a market capitalisation of $2.2 billion and is trading on a trailing yield of 6.5% unfranked.
Foolish takeaway
Utilities, like real estate investment trusts, have long been the go-to for investors looking for safe and reliable dividends. Their monopoly asset bases make them defensive businesses to own for risk-averse investors.
