I previously wrote an article that looked at low beta, high yield dividend stocks. The initial screen provided over 200 potential candidates from which I quickly narrowed it to around 150 stocks with some basic screens. I then focused in on several common names to examine what impact they would have as an addition to an equity portfolio.
However, by choosing common names including McDonald’s Corp. (MCD), Exxon Mobil Corp. (XOM) and Wal-Mart Stores, Inc. (WMT), I ignored some higher yielding stocks and also did not focus on any sector in particular.
The focus of this article will be to revisit these companies and look more carefully at the utility stocks as defined by Zacks.com. A full 32 utility stocks made the final list for consideration. These companies ranged from Chesapeake Utilities Corporation (CPK), with a market capitalization of $367 million, to Nippon Telegraph and Telephone Corporation (NTT), with a market capitalization around $66 billion.
The list also excluded interesting companies that might be worth considering including France Telecom (FTE), which has a slightly higher beta. Since my previous article noted that equal betas do not necessarily imply equal reductions in portfolio volatility, I’ve included FTE for comparison.
Here is a list of all 33 stocks (FTE included) ranked by dividend yield:
Ticker | Name | Beta | Dividend Yield 3/3/2011 | Market Cap 3/3/2011 ($millions) |
AT | Atlantic Power Corporation | 0.08 | 7.0% | 1,036 |
FTE | France Telecom | 0.71 | 5.9% | 59,410 |
PPL | PPL Corporation | 0.47 | 5.4% | 12,459 |
DUK | Duke Energy Corporation | 0.44 | 5.4% | 24,031 |
PGN | Progress Energy Inc. | 0.39 | 5.4% | 13,491 |
VVC | Vectren Corporation | 0.41 | 5.1% | 2,212 |
ED | Consolidated Edison Company of New York, Inc. | 0.29 | 4.8% | 14,572 |
SO | Southern Company (The) | 0.35 | 4.8% | 31,741 |
AGL | AGL Resources, Inc. | 0.45 | 4.6% | 3,048 |
CHG | CH Energy Group, Inc. | 0.40 | 4.4% | 776 |
XEL | Xcel Energy Inc. | 0.44 | 4.2% | 11,551 |
LG | Laclede Group, Inc. | 0.08 | 4.2% | 872 |
CHT | Chunghwa Telecom Co Ltd | 0.38 | 4.2% | 23,234 |
PCG | Pacific Gas & Electric Co. | 0.33 | 3.9% | 18,331 |
WGL | WGL Holdings Inc | 0.25 | 3.9% | 1,970 |
NST | NSTAR | 0.32 | 3.8% | 4,683 |
PNY | Piedmont Natural Gas Company, Inc. | 0.25 | 3.7% | 2,184 |
MGEE | MGE Energy Inc. | 0.28 | 3.7% | 945 |
NWN | Northwest Natural Gas Company | 0.31 | 3.6% | 1,288 |
GAS | Nicor Inc. | 0.50 | 3.5% | 2,434 |
WEC | Wisconsin Energy Corporation | 0.35 | 3.5% | 6,996 |
CWT | California Water Service Group Holding | 0.30 | 3.4% | 747 |
NJR | NewJersey Resources Corporation | 0.19 | 3.4% | 1,770 |
CPK | Chesapeake Utilities Corporation | 0.42 | 3.2% | 387 |
IDA | IDACORP, Inc. | 0.44 | 3.2% | 1,874 |
AWK | American Water Works | 0.35 | 3.1% | 4,941 |
AWR | American States Water Company | 0.39 | 3.0% | 639 |
CNL | Cleco Power LLC | 0.50 | 3.0% | 2,019 |
UGI | UGI Corporation | 0.36 | 3.0% | 3,691 |
WTR | Aqua America, Inc. | 0.21 | 2.7% | 3,151 |
SJI | South Jersey Industries, Inc. | 0.29 | 2.6% | 1,703 |
NTT | Nippon Telegraph and Telephone Corporation | 0.30 | 2.5% | 66,554 |
SHEN | Shenandoah Telecommunications Co | 0.37 | 1.9% | 408 |
Data is provided by Zacks.comservices except for FTE which is from Yahoo!Finance as of March 4, 2011.
The next step of the analysis is to download all 33 price histories to disaggregate the beta into the two components: correlation coefficient and volatility ratio. The volatility ratio is simply the ratio of the stocks volatility to that of a selected market index, SPDR S&P 500 Trust ETF (SPY) for this analysis. The interesting follow up analysis would be to see if these stocks could also reduce volatility in a different index – perhaps a balanced fund that carries both equities and bonds.
The implied beta calculation is based upon the correlation coefficient over the last 4 years. It should be noted that both AT and AWK had insufficient price histories. I also included the Utilities Select Sector SPDR (XLU) for comparison.
Ticker | Zacks.com Beta | Calculated Correlation Coefficient | Calculated Volatility | Volatility Ratio | Implied Beta |
SPY | 1.00 | 100% | 5.6% | 100% | 1.00 |
XLU | NA | 71% | 4.6% | 83% | 0.59 |
XEL | 0.44 | 51% | 4.7% | 83% | 0.42 |
PCG | 0.33 | 40% | 4.4% | 79% | 0.31 |
FTE | 0.71 | 53% | 7.8% | 139% | 0.74 |
PPL | 0.47 | 44% | 6.2% | 110% | 0.49 |
DUK | 0.44 | 59% | 4.1% | 73% | 0.43 |
PGN | 0.39 | 56% | 3.9% | 70% | 0.39 |
VVC | 0.41 | 40% | 5.8% | 104% | 0.42 |
ED | 0.29 | 37% | 4.5% | 81% | 0.30 |
SO | 0.35 | 45% | 4.2% | 74% | 0.34 |
AGL | 0.45 | 53% | 5.0% | 89% | 0.48 |
CHG | 0.40 | 32% | 6.7% | 120% | 0.38 |
LG | 0.08 | 6% | 5.3% | 95% | 0.05 |
CHT | 0.38 | 40% | 6.1% | 109% | 0.44 |
WGL | 0.25 | 27% | 5.0% | 89% | 0.24 |
NST | 0.32 | 40% | 4.5% | 80% | 0.32 |
PNY | 0.25 | 21% | 5.9% | 106% | 0.23 |
MGEE | 0.28 | 33% | 4.5% | 80% | 0.27 |
NWN | 0.31 | 32% | 5.3% | 95% | 0.30 |
GAS | 0.50 | 40% | 7.3% | 131% | 0.52 |
WEC | 0.35 | 47% | 4.3% | 78% | 0.36 |
CWT | 0.30 | 25% | 5.9% | 106% | 0.26 |
NJR | 0.19 | 26% | 4.5% | 81% | 0.21 |
CPK | 0.42 | 42% | 5.9% | 106% | 0.44 |
IDA | 0.44 | 45% | 5.5% | 98% | 0.44 |
AWR | 0.39 | 30% | 6.5% | 116% | 0.35 |
CNL | 0.50 | 54% | 5.4% | 96% | 0.51 |
UGI | 0.36 | 48% | 4.1% | 73% | 0.35 |
WTR | 0.21 | 18% | 6.6% | 118% | 0.21 |
SJI | 0.29 | 35% | 4.6% | 82% | 0.29 |
NTT | 0.30 | 28% | 6.8% | 122% | 0.34 |
SHEN | 0.37 | 17% | 11.7% | 209% | 0.36 |
Data is provided by Zacks.com for all betas except for XLU and SPY which are from Yahoo!Finance. Volatility and correlations are calculated from Yahoo!Finance price histories using split and dividend adjusted monthly prices.
The first observation is that XLU has a much higher correlation than any of the other utilities. Also, all my calculations for betas aligned pretty closely with Zacks.com, hence implying that most likely my volatilities and correlation coefficients were correct. Here is the conclusion table showing the volatility reduction and yield increase from shifting from a 100% SPY portfolio to a 75% SPY and 25% in each of the following stocks.
Portfolio Impact of Utility Stocks
Ticker | Dividend Yield | Volatility | Correlation Coefficient | New Portfolio Volatility | New Dividend Yield | Incremental Volatility | Incremental Dividend Yield |
SPY | 1.7% | 5.6% | 100% | 5.6% | 1.7% | 0.0% | 0.0% |
XLU | 4.0% | 4.6% | 71% | 5.1% | 2.3% | -0.5% | 0.6% |
XEL | 4.2% | 4.7% | 51% | 4.9% | 2.3% | -0.7% | 0.6% |
PCG | 3.9% | 4.4% | 40% | 4.7% | 2.3% | -0.9% | 0.6% |
FTE | 5.9% | 7.8% | 53% | 5.5% | 2.8% | -0.1% | 1.1% |
PPL | 5.4% | 6.2% | 44% | 5.1% | 2.6% | -0.5% | 0.9% |
DUK | 5.4% | 4.1% | 59% | 4.9% | 2.6% | -0.7% | 0.9% |
PGN | 5.4% | 3.9% | 56% | 4.8% | 2.6% | -0.8% | 0.9% |
VVC | 5.1% | 5.8% | 40% | 5.0% | 2.5% | -0.6% | 0.8% |
ED | 4.8% | 4.5% | 37% | 4.7% | 2.5% | -0.9% | 0.8% |
SO | 4.8% | 4.2% | 45% | 4.8% | 2.5% | -0.8% | 0.8% |
AGL | 4.6% | 5.0% | 53% | 5.0% | 2.4% | -0.6% | 0.7% |
CHG | 4.4% | 6.7% | 32% | 5.0% | 2.4% | -0.6% | 0.7% |
LG | 4.2% | 5.3% | 6% | 4.5% | 2.3% | -1.1% | 0.6% |
CHT | 4.2% | 6.1% | 40% | 5.0% | 2.3% | -0.6% | 0.6% |
WGL | 3.9% | 5.0% | 27% | 4.7% | 2.3% | -0.9% | 0.6% |
NST | 3.8% | 4.5% | 40% | 4.8% | 2.2% | -0.8% | 0.5% |
PNY | 3.7% | 5.9% | 21% | 4.7% | 2.2% | -0.9% | 0.5% |
MGEE | 3.7% | 4.5% | 33% | 4.7% | 2.2% | -0.9% | 0.5% |
NWN | 3.6% | 5.3% | 32% | 4.8% | 2.2% | -0.8% | 0.5% |
GAS | 3.5% | 7.3% | 40% | 5.2% | 2.1% | -0.4% | 0.4% |
WEC | 3.5% | 4.3% | 47% | 4.8% | 2.1% | -0.8% | 0.4% |
CWT | 3.4% | 5.9% | 25% | 4.8% | 2.1% | -0.8% | 0.4% |
NJR | 3.4% | 4.5% | 26% | 4.6% | 2.1% | -1.0% | 0.4% |
CPK | 3.2% | 5.9% | 42% | 5.0% | 2.1% | -0.6% | 0.4% |
IDA | 3.2% | 5.5% | 45% | 5.0% | 2.1% | -0.6% | 0.4% |
AWR | 3.0% | 6.5% | 30% | 4.9% | 2.0% | -0.7% | 0.3% |
CNL | 3.0% | 5.4% | 54% | 5.0% | 2.0% | -0.6% | 0.3% |
UGI | 3.0% | 4.1% | 48% | 4.8% | 2.0% | -0.8% | 0.3% |
WTR | 2.7% | 6.6% | 18% | 4.8% | 2.0% | -0.8% | 0.3% |
SJI | 2.6% | 4.6% | 35% | 4.7% | 1.9% | -0.9% | 0.2% |
NTT | 2.5% | 6.8% | 28% | 5.0% | 1.9% | -0.6% | 0.2% |
SHEN | 1.9% | 11.7% | 17% | 5.5% | 1.8% | -0.1% | 0.1% |
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