These dividend stocks are trading at rare discounts to our fair value estimates.
The increasing probability of higher-for-longer interest rates has caught up to utilities. With the 10-year U.S. Treasury yield reaching levels we haven’t seen in more than 15 years, the dividend yields on utilities stocks are less attractive. In fact, the sector’s dividend yield has been lower than the yield on the 10-year U.S. Treasury since last August.
Nevertheless, Morningstar thinks that this falloff in the prices of utilities stocks provides investors with a rare opportunity to buy high-quality utilities at attractive prices—in fact, the sector hasn’t looked this cheap since 2009. Morningstar thinks the fundamentals of utilities are strong, offering better growth prospects, improving rate regulation, and less-volatile earnings than they have in their history. We’re forecasting 6% annual earnings per share and dividend growth, on average, among the U.S. utilities we cover.
Today, we’re looking at three of Morningstar’s top picks in the sector for the fourth quarter. We think these companies can grow earnings and dividends faster and for longer than their current stock prices suggest.
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