Bloomberg News

Utility Yield Appeal May Survive Fiscal Cliff: Chart of the Day

December 05, 2012

Utility stocks are a better choice for investment income than corporate bonds even though federal tax rates on dividends may be poised to rise, according to Jack Ablin, chief investment officer at BMO Private Bank.

The CHART OF THE DAY shows how Ablin drew his conclusion: by tracking the differential between the dividend yield on the Standard & Poor’s 500 Utilities Index and the yield on Barclays Plc’s aggregate index of U.S. corporate debt.

The yield on the stock gauge was 154 basis points higher two days ago, when Ablin included a similar chart in a report. The gap peaked last month at 167 basis points, the highest since at least 1993, according to data compiled by Bloomberg. Each basis point equals 0.01 percentage point.

“Utilities still offer investors an attractive option in a desert of yield alternatives,” the Chicago-based Ablin wrote in the report. Last month, the yield on the Barclays index fell to 2.64 percent, the lowest since calculations began in 1973.

Yields on utility stocks have risen this year as the so- called fiscal cliff, consisting of tax increases and spending cuts, draws closer. The top tax rate on dividends is scheduled to increase to 43.4 percent from 15 percent if Congress does not replace the fiscal cliff with a new budget plan.

Dividends paid by companies in the S&P 500 utility index were 4.25 percent of its value yesterday, up from 4.01 percent at the end of last year. The index fell 3.8 percent for the year through yesterday and was the only one of the S&P 500’s 10 main industry gauges to post a loss for the period.

To contact the reporter on this story: David Wilson in New York at dwilson@bloomberg.net

To contact the editor responsible for this story: Chris Nagi at chrisnagi@bloomberg.net


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