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Utilities and dividends historically go hand in hand -- that's why the 16.8% dividend hike from
Northeast Utilities System(NU) on Wednesday was such a good sign for income investors. NU's subsidiaries provide regulated utility service for more than 2 million customers in Connecticut, Massachusetts and New Hampshire, a business that's not especially glamorous, but that provides hefty dividend payouts.
Following the hike, the firm's yield now sits at 3.8%.
Utilities are boring, and that's exactly why investors like them. Their rates are locked-in, demand for energy is fairly resilient and predictable, and interest costs are easy to get a handle on years in advance. Just as with REITs, utilities are tailor-made to pay out dividends.
To be fair, Northeast Utilities has been a bit more exciting than most peers lately, thanks to a $9.5 billion merger with NSTAR last month. The move widens NU's footprint and cuts operations costs, at the expense of some near-term rate concessions for consumers. Longer-term, investors should see the benefits of the merger.
While the utility business is capital-intense, NU has a reasonably strong balance sheet and significant cash generation abilities. Those factors should keep those dividends flowing (and growing) for the foreseeable future. NU makes a good core holding choice for income investors who are in search of utility exposure.
NU shows up on a list of
Utilities Stocks Bought and Sold by Hedge Funds in the most recently reported quarter.