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Morningstar Investing Insights: What You Need to Know About Utilities Stocks, Inflation and 3 Top Stocks

Investors have pivoted away from growth to more defensive stocks in recent months. While many top funds and investors are still heavily invested in companies like Apple (AAPL), Alphabet (GOOG), and Microsoft (MSFT), due to their competitive durable advantages, other sectors look attractive now.

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  • One such sector is the utility space. Investors like it for its consistency and steady cash flows, often paid out in the form of dividends.

    However, customers may want to be cautious on utility investing. Typically, the regulatory issues facing utilities mean that higher electricity costs can’t be passed on to customers.

    Raising electricity costs on customers can be a long, drawn-out process. That can impact how quickly a utility can react to changes in costs. In addition to their high capital costs, utilities may be a safe-haven investment, but they’re far from a growth play.

    That said, utilities can still provide investors with a safe-haven investment in volatile markets. Especially as share prices and dividends can increase in time. That’s in contrast to bonds, where rising bond yields come at the expense of rising prices.

    With inflation running high, investors need to find ways to invest and preserve their wealth beyond this destruction of purchasing power. Leaving cash in the bank, where yields remain low, or even still at zero percent, guarantees a loss of purchasing power over time.

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