A Cautious Look at Electric Utilities; Once Safe and Dependable, They Are Now Hotbeds of Turmoil and Uncertainty
If you picked `c' you are right. One of the oddities of investing is that as the price of a stock goes down, the yield on the stock gets better.</br></br>For example, if Zilch Power & Light Co. pays a $1 a year dividend, and the stock sells for $25, you are getting a yield of 4 percent. But let the stock sink to $12.50 a share and you are getting an 8 percent yield.</br></br>Now, an 8 percent yield looks pretty good these days and, indeed, so does any stock that is selling for half the price of only 11 months ago. Thus, a lot of investors must be looking at the recent carnage in utility stocks and utility funds and wondering if it is time to go bargain hunting.</br></br>Unfortunately, there's no easy answer. Electric utility stocks, once safe, dependable and boring, have become hotbeds of turmoil and uncertainty. Their sensitivity to changes in interest rates is only part of the story.</br></br>Vast changes are taking place in the electricity business and the utilities, which once enjoyed a monopoly status, apparently will be forced to compete for business in a free-wheeling competitive environment that could hurt the value of their generating plants, their companies and their stock prices.