As stock market volatility increases, utility shares and utility funds may be relatively safe places for your money. They offer:
* High yields. Utility stocks typically pay dividends of 4-5 percent. That’s higher than the yield on 10-year Treasuries now.
* Low taxes. At least this year, stock dividends are taxed no higher than 15 percent while interest from bonds and bank accounts are taxed as high as 35 percent.
* Low prices. Utility stocks have lagged the broad market in 2010.
* Good prospects. Utility shares have underperformed because they’re vulnerable to interest rate increases, and many people thought the Fed would raise rates. However, with a European debt crisis threatening to spread, the Fed probably will avoid tightening its monetary policy.
Utility stocks are considered good defensive plays because most people pay their electric bills, no matter what, so the dividends are probably safe. Morningstar’s mutual fund pick in this sector is Franklin Utilities Fund; SPDR Utilities Select Sector is an exchange-traded fund (ETF) that tracks an index of utility stocks. Both yield over 4 percent now.
