September has historically been the worst month for the stock market, with average return for the Dow Jones Industrial Average being a negative 0.75%. While several theories for this uncanny phenomenon have been doing the rounds, the most common notion is that investors take time off during the summer months, inducing a drop in trading volumes.
As it is, the global market is far from being stable at the moment, courtesy of the ongoing U.S.-China trade dispute, piling government debt and slowdown in some of the major economies. In a developing economy like India, GDP growth slipped to a six-year low level of 5% in the June quarter. Meanwhile in China, GDP growth at the end of the second quarter was 6.2% — the weakest in 27 years. Thanks to these concerning developments, the World Bank recently lowered its 2019 global growth forecast to 2.6% from the January projection of 2.9%.
U.S. GDP growth is expected to decelerate to 2.5% this year from 2.9% in 2018, and then ease to 1.7% and 1.6% in 2020 and 2021, respectively. Amid fears of weakening U.S. economic conditions, the Feb decided to cut interest rates by 25 basis points to 2.25%.
Rate cut is a positive for capital intensive domestic-focused utilities. Utilities need cheap source of funds to maintain infrastructure addition and find ways to lower emission. Since demand for utility services does not vary much in unstable markets, utilities are a safe investment option.
In the wake of uncertainty in the global economic scenario, investors should ideally focus on domestically oriented utilities, which are protected against volatility in international markets. The year-to-date return from Dow Jones Utility Average (DJU) was 19.2%, compared with the S&P 500’s 18.7%. We have considered four utilities that are likely to provide solid returns in September. Regular dividend payment capabilities make utilities attractive investment bets.
Picking the Right Stocks
Recognizing a stock with good prospects is no mean feat. We have picked the utilities based on the following criterion
Zacks Rank = #2 (Buy)
YTD Return = > 18.7%
Dividend Yield = > 2%
ROE (TTM) = > 9.5%
ONEOK Inc. OKE is an energy company engaged in natural gas and natural gas liquids gathering and distribution businesses. The company’s dividend yield is 5.01% and ROE (TTM) is 19.3%.
This Zacks Rank #2 stock registered a positive earnings surprise of 7.14% in the last-reported quarter and has returned 31.6% year to date.
Unitil Corporation UTL is a public utility holding company, engaged in the distribution of electricity and natural gas in the United States. The company’s ROE (TTM) is 9.6%.
This stock recorded a positive earnings surprise of 28.57% in the last-reported quarter and has returned 19.6% year to date. The company’s dividend yield is 2.42%.
Alliant Energy Corporation LNT is a holding company with subsidiaries engaged in regulated electric and natural gas services. ROE (TTM) of the company is 11.11%.
This stock has returned 24.4% year to date. The company’s dividend yield is 2.65%.
BCE, Inc. BCE is Canada's largest communications company. ROE (TTM) of the company is 19.15%.
This stock registered a positive earnings surprise of 3.34% in the last-reported quarter and has returned 21% year to date. The company’s dividend yield is 4.95%,