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4 Utilities To Buy In A Bear Market

Bear market fears continue to dominate the headlines this year. Oil and China are crashing, and the western markets are being sold in anticipation of another global sell-off. Investors are checking their statements in anguish, as they are now faced with a decision to sell everything or hide in areas that are less likely to be affected. Rather than panic and hit the Sell button, investors need to be aware of options that will defend their portfolio against more selling. In a recession, people still have to stay warm and keep the lights on. The consistency of revenues based on those human needs, as opposed to wants, makes the sector favorable in down times. Gas, water and other necessary utilities companies are all considered to be recession-proof industries. These companies can benefit from slowing economic growth, as interest rates will have a tendency to stay lower. Low rates help a utility company by making their dividend look more attractive, plus it allows for cheaper borrowing. The Fed has hinted that rates will be rising, making the dividend of utilities less desirable. However, if global market pressure continues, the Fed will inevitably back off from that thought. The combination of low interest rates, high dividends and market fear make utilities a good place to hide. The Utilities Select Sector SPDR ETF (NYSEARCA: XLU ) is an ETF that reflects the performance of utilities. The chart below marks the performance over the last two years versus the S&P. A closer look shows the divergence since 2016, with smart money supporting the sector. While the ETF will reduce company-specific risk, it also tends to reduce reward and dividends. Let’s take a look at four top-ranked stocks that will enhance the utility play. Idacorp (NYSE: IDA ) is an electric public utility company and a Zacks Rank #2 (Buy) stock. The company is engaged in the generation, purchase, transmission, distribution and sale of electric energy, primarily in the areas including southern Idaho, eastern Oregon and northern Nevada. It operates gas- and coal-fired plants, but the majority of its operations rely on hydroelectric power for their generating needs. The majority of its customers include lodges, condominiums, and ski lifts and related facilities. Idacorp has a market cap of $3.4 billion, with a dividend yield of 3.01%. The company’s EPS growth was up 11.45% over the previous quarter, and it has a good record of surprising EPS to the upside. NorthWestern Corp. (NYSE: NWE ) is a Zacks Rank #2 (Buy) stock and one of the largest providers of electricity and natural gas in the northwest quadrant of the United States. Founded in 1923, it generates and distributes electricity and natural gas to over 700,000 customers in four states, including Montana, South Dakota and Nebraska. The company has a market cap of $2.6 billion and a 3.52% dividend. It sports a forward P/E of 16 and has a Zacks Style Score of “B” in Growth, with EPS growth up 34% from the previous year. While EPS estimates have been coming down lately, sales growth has been steady, an important catalyst for the company. Southern Company (NYSE: SO ) is a Zacks Rank #2 (Buy) stock that operates as a public utility company by means of coal, nuclear, oil, gas and hydro power. The company, with over 26,000 employees, provides a broad range of energy-related services to utilities and industrial companies globally. Southern Company’s businesses include independent power projects, integrated utilities, a distribution company, and energy trading and marketing businesses outside the southeastern United States. Southern has a market cap of $43 billion and offers investors a dividend of 4.6%. EPS growth was up 7.34% from last year, showing why the company has a Zacks Style Score of “B” in Growth and Momentum. It has had an upside surprise six of the last eight times. SCANA Corporation (NYSE: SCG ) is a Zacks Rank #2 (Buy) stock. This is an energy-based holding company whose businesses include regulated electric and natural gas utility operations, telecommunications and other non-regulated energy-related businesses. SCANA’s subsidiaries serve electric customers in South Carolina, North Carolina and Georgia. SCANA offers investors a 3.57 dividend, with an $8.55 billion market cap. Estimates for the company have risen 1.5% over the last 90 days, going from $3.89 to $3.95 a share. In Summary Utilities won’t hit home run, but while the pitcher is throwing a no-hitter, they offer a chance for investors to bunt their way on base. If you are fearful of more market downside, park yourself in utilities until the risks fade away. If interest rates start to rise, or when the fear of global recession is no longer present, exit the sector and add risk. Original Post

6 Quality Dividend ETFs For Safety And Income

Though U.S. stocks logged in the first weekly gains in a month after a tumultuous ride buoyed up by an incredible rebound in oil price and hopes of additional stimulus in Europe and Japan, a long list of worries kept the stock market returns at risk. This is especially true given the weak international fundamentals, especially in China and its global repercussions that could put a pause on the slowly recovering U.S. economy. Additionally, bleak oil demand/supply trends, weak Q4 corporate earnings, and uncertain timing of the next rate hike are making investors cautious. Notably, corporate profits seem to be in recession with fourth-quarter earnings expected to decline 6.6% as per the Zacks Earnings Trends . This would mark the third consecutive quarter of decline in earnings. Accounting for the weekly gain, the major benchmarks were down 6.5% or more from a year-to-date look and are still in the correction territory having lost more than 10% from their 52-week high price. As per BMO Capital, “the S&P 500 is currently on pace to record its worst monthly decline since January 2009 and 11th worst month during the post war era.” This sluggish backdrop has rekindled investors’ faith in products that provide stability and safety in a rocky market. Nothing seems a better strategy than picking quality dividend stocks in this sort of an environment. Why Quality Dividend? Quality dividend stocks offer safety and stability in a choppy stock market as they ensure regular income to investors in the form of dividends. At the same time, they also have the potential for capital appreciation when the market is on an upswing. Investors should note that these stocks are mature companies, which are less volatile to the large swings in the stock prices, and therefore are well protected than others in a tumbling market, which we have seen several times this year. In a nutshell, quality dividend stocks have a long track of profitability, history of raising dividend year over year with prospects of further increases, good liquidity, and some value characteristics. As a result, a basket of quality dividend stocks offer dividend growth opportunities when compared to other products in the space but might not necessarily have the highest yields. These products provide a nice combination of dividend growth and capital appreciation opportunity and are mainly suitable for the risk-averse, long-term investors. For them, we have highlighted some ETFs that could be excellent choices irrespective of the stock market directions. FlexShares Quality Dividend Index ETF (NYSEARCA: QDF ) This fund uses a proprietary model that includes factors like profitability, solid management and reliable cash flow. Then, the firms are selected based on expected dividend payments, resulting in a basket of 185 securities. The product is widely diversified across components with none of the securities holding more than 3.6% of assets. Further, it is well spread out across sectors with financials taking the top spot at 17.5% followed by information technology (16.8%), consumer discretionary (14.3%) and healthcare (11.9%). The fund has amassed $672.4 million in its asset base and trades in a moderate volume of nearly 71,000 shares. It charges 37 bps in fees per year and pays a dividend yield of 3.24% annually. The fund is down 6.2% in the year-to-date time frame. Schwab U.S. Dividend Equity ETF (NYSEARCA: SCHD ) With an AUM of $2.9 billion, this product offers exposure to the 111 high dividend-yielding U.S. companies that have a record of consistent dividend payments supported by fundamental strength based on financial ratios and ample liquidity. This can be easily done by tracking the Dow Jones U.S. Dividend 100 Index. The fund is well spread across single security with none holding more than 4.8% of assets. However, it is slightly tilted toward the consumer staples sector with 23% share while information technology, industrials, healthcare and energy rounded off the top five. The fund trades in solid volume of more than 667,000 shares a day and is one of the low-cost choices in the dividend space, charging 7 bps in fees per year. The ETF has shed about 5.1% so far this year and yields 3.13% in annual dividends. WisdomTree LargeCap Dividend ETF (NYSEARCA: DLN ) This ETF tracks the WisdomTree LargeCap Dividend Index, which is dividend weighted annually to reflect the proportional share of cash dividend that each company is expected to pay in the coming year. The fund has been able to manage assets of $1.6 billion and trades in good volume of 105,000 shares a day on average. Expense ratio came in at 0.28%. Holding 298 stocks in its basket, the product is widely diversified across each component as none of these hold more than 3.5% of assets. Sector-wise, it also has spread-out exposure with none of the sector making up for more than 15.4% share. The fund has an annual dividend yield of 2.96% and has lost 5.5% so far this year. ProShares S&P 500 Dividend Aristocrats ETF (NYSEARCA: NOBL ) This product provides exposure to 51 companies that raised dividend payments annually for at least 25 years by tracking the S&P 500 Dividend Aristocrats. It is widely diversified across various securities as each account for less than 3% share. From a sector look, more than one-fourth of the portfolio is dominated by consumer staples, followed by healthcare (15.2%), industrials (14.9%), consumer discretionary (12.1%), and financials (11.6%). The fund has an impressive level of AUM of $984.1 million and has an annual dividend yield of 2.13%. Expense ratio is 0.35% while average daily volume is good at 177,000 shares. NOBL has lost 5.3% so far this year. WisdomTree U.S. Dividend Growth ETF (NASDAQ: DGRW ) This fund tracks the WisdomTree U.S. Quality Dividend Growth Index and offers diversified exposure to U.S. dividend-paying stocks with both growth and quality characteristics like long-term earnings growth expectations, and three-year historical averages for return on equity and return on assets. It has gathered $594.5 million in its asset base and trades in good volume of nearly 171,000 shares per day. The ETF charges 28 bps in fees per year from investors and holds 296 securities in its basket, with each holding less than 4.3% share. From a sector look, it provides double-digit allocation to consumer discretionary, information technology, industrials, consumer staples, and healthcare. The fund has lost 5.9% in the year-to-date time frame. First Trust NASDAQ Rising Dividend Achievers ETF (NASDAQ: RDVY ) This fund provides exposure to 50 U.S. stocks with a history of rising dividends and that are expected to continue doing so in the future. In addition, it also screens for stocks with rising earnings per share and cash-to-debt ratio greater than 50%. This can be done by tracking the NASDAQ Rising Dividend Achievers Index. All the securities are well spread out with each accounting for less than 2.2% of total assets. However, the product has a certain tilt toward financials with 27.6% share, closely followed by information technology (23.6%). The ETF has accumulated $36.2 million in its asset base and sees a paltry volume of 20,000 shares a day on average. Expense ratio came in at 0.50%. The fund has shed 8.5% so far this year. Original post

Cold Snap Sparks Sudden Rally In Oil Price: ETFs Surge

After crashing to below the 12-year low in Wednesday’s trading session, oil price spiked nearly 21% over the past two days, representing the biggest two-day rally since September 2008. It has also extended its gains in the early trading session today with both U.S. crude and Brent trading above $32 per barrel (read: Oil Hits 12-Year Low: Short Energy Stocks with ETFs ). The steep increase came on the back of short covering, bargain hunting as well as freezing conditions and snowstorms in parts of the U.S. and Europe that boosted the short-term demand for heating oil. Notably, speculators’ short position in WTI dropped 8.4% for the week ended January 19, as per the data from U.S. Commodity Futures Trading Commission. In addition, weekly data from oil services firm Baker Hughes (NYSE: BHI ) showed that the number of rigs fell for the fifth consecutive week by 5 last week to 510, the lowest level since April 2010. Further, hopes of additional stimulus in Europe and Japan, and China comments on no plans to devalue the yuan boosted the confidence in the overall economy, thereby bolstering the case for global oil demand. ETF Impact The tremendous trading in oil sent the oil ETFs space into deep green in Friday’s trading session. In particular, the United States Diesel-Heating Oil ETF (NYSEARCA: UHN ) surged 10% followed by gains of 9.5% for the United States Brent Oil ETF (NYSEARCA: BNO ) , 8.6% for the PowerShares DB Oil ETF (NYSEARCA: DBO ) and 8.3% for the United States Oil ETF (NYSEARCA: USO ) . While the returns of these funds are tied to the oil price, they are different in some way or the other. This is especially true as UHN tracks the movement of oil prices while BNO provides direct exposure to the spot price of Brent crude oil on a daily basis through future contracts. DBO provides exposure to crude oil through WTI futures contracts and follows the DBIQ Optimum Yield Crude Oil Index Excess Return while USO seeks to match the performance of the spot price of light sweet crude oil WTI. Out of the four, USO is the most popular and liquid ETF in the oil space with AUM of $2.3 billion and average daily volume of 34 million. UHN is unpopular and illiquid with AUM of $2.5 million and average daily volume of just 3,000 shares. Further, USO is the least expensive, charging just 45 bps in fees per year from investors. Meanwhile, leveraged oil ETFs also shot up with the VelocityShares 3x Long Crude Oil ETN (NYSEARCA: UWTI ) and the ProShares Ultra Bloomberg Crude Oil ETF (NYSEARCA: UCO ) surging 24.6% and 16.8%, respectively. The former seeks to deliver thrice the returns of the daily performance of WTI crude oil while the latter tracks the two times daily performance of futures contracts on WTI crude oil. What Lies Ahead? Despite the steep gains, oil price is down 13% so far this year and the long-term fundamentals remain bearish (read: If the Oil Crash Continues, Buy These 5 ETFs to Outperform ). This is because oil production has risen worldwide with the the Organization of the Petroleum Exporting Countries (OPEC) continuing to pump near-record levels, and higher output from the U.S., Iran and Libya. The lift in oil sanctions in Iran would add a fresh stock of oil to the already oversupplied global market as the country is expected to increase its crude oil exports by half a million barrels a day immediately and a million barrels a day within a year of lifting the ban. On the other hand, demand for oil across the globe looks tepid given slower growth in most developed and developing economies. In particular, persistent weakness in the world’s biggest consumer of energy – China – will continue to weigh on the demand outlook. The negative demand/supply imbalance would push oil prices and the related ETFs further down at least in the short term. Link to the original post on Zacks.com