Utility Stocks - The Benefits and the Risk Associated With Them

Utility Stocks – The Benefits and the Risk Associated With Them

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If you are looking to maximize your savings and have a little extra income from dividends, utility stocks can be an excellent option for you. On the whole, utilities are considered to be conservative options which bring back high dividends as compared to other securities available in the stock market.

Utility Stocks

For those who are willing to make investments in this type of stocks, below are some of the benefits you will receive out of them:

Benefits of Utility Stocks:

Utilities are commonly referred to as essential services which are needed to run a household or any business for that matter. These utilities include water, electricity and gas. Since the need for these elements will never reduce regardless of the growth of the economy, this sector stands strong and will remain stable for the many more years to come. Therefore when the market is falling, these stocks have the ability to withstand the fall. Furthermore, these stocks are considered to have low risks which means investors are not in a hurry to sell them when the broader environment is not as good. The biggest benefit that can be derived out of utility stock is that they pay above-market dividends.

Benefits are always accompanied by one or more drawbacks. In the case of these stocks, the potential provided by them for long term capital appreciation is not as strong as you may think of it to be. This means that the growth of the companies associated with this sector is limited and this is also seen in their stock price performance. Since the companies have less future growth to manage, they are in a stronger position to pay more dividends with more cash on hand.

Risks of the Stocks:

Like all other sectors of the stock market, utilities are also associated to broader market forces. In the past, there have been times when utilities have lost their value and were down to half of what it was before. Therefore, as investors it is important to decide whether you will make an investment in bonds or divided paying stocks when utilities are the question.

Other factors which may impact the performance of utility stocks negatively include the rising interest rates and changes in government policy. The higher rates of interest would mean underperformance of the sector while the policy changes and heavy government regulation makes the sector almost vulnerable.

Investing in Utility Stocks:

Regardless of which investment you opt for, always analyze the options before putting all your money in. If you are looking to invest in these stocks, you can do so with the help of a broker. Then  it is your choice whether you wish to put your money into individual stocks, specialized mutual funds or ETFs. When you approach a financial advisor, ensure that you have all the information that is needed to make the decision. You can also conduct a little research online in order to have a sound idea of the steps you may need to take in order to make an investment.

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