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Power, Water & Gas

The Utilities sector consists mostly of companies that keep the lights on for us, that deliver safe, drinkable water, and that provide natural gas for cooking and heating. Ever wonder why we don’t get a choice of utility companies in our city? Think about how chaotic it would be to have duplicate telephone poles and lines crisscrossing overhead and water and gas main lines on top of each other under the ground. To avoid this craziness, utility companies are granted monopolies. That is, each one is the sole service provider over a geographic region. In exchange for the right to do business without competition and to recoup their high infrastructure costs, utility companies are closely regulated by state and federal agencies.

Under these regulations, a utility company’s revenue, expense, and cash flow remain fairly steady and predictable, not subject to much variation. For this reason, they are known for paying reliable dividends and their stock prices don’t suffer severe fluctuation. We like to hold utility sector companies in our clients’ portfolios for the income and stability they provide.

However, to mitigate the risks of regulation, which vary from state to state, and the geographic risk (like hurricanes, tornadoes, floods and earthquakes), we prefer to own a “basket” of utility companies from across the country. We get this diversification by investing in an exchange-traded fund (ETF) devoted to the Utility sector. The dividend payout may be a bit less than if you were to own a single utility, but we feel the reduced risk is worth it.

So be sure to power up your portfolio with some attractive dividend income from this sector!

(Utility companies include Southern Company, Dominion Resources, Nextera Energy, Duke Energy & American Power)*

*Source: S&P Utilities Sector Fund (XLU) Top 5 Holdings by Weight as of 1/20/2016. For example only - not intended as a recommendation.

NOTE: Maxwell Noll Investment Advisors is a fee-only advisor. Investment recommendations will be made only after a thorough review of current assets and risk tolerance, and a management agreement has been executed. Please refer to Form ADV-2 for fee structure and other important information.