The utilities sector traditionally offers a high dividend payout. Dividends, which may come in the form of additional stock shares or, more commonly, cash, are allotments of a company’s earnings given out to shareholders. Typically, the dividend amount is quoted in relation to the dollar amount per share. It may also be stated as a percentage of the stock's current market value; this is known as the dividend yield. A company with consistently high dividend payouts offers greater income to persons holding the stock. For investors whose focus is income investing, the dividend yield of a stock is one of the most important considerations when choosing equity investments.
A number of utility stocks offer consistently high dividends to their shareholders. The top utility companies (in the fields of electric, gas, water and other basic utilities) offer an average dividend yield of 3-4%. Some of the utility stocks featuring the highest dividend payouts are PPL, Consolidated Edison, Duke Energy, Southern Company and Piedmont Natural
Most utility firms are well-established companies with solid revenues. These companies typically do not engage in major expansions and rarely have exponential growth opportunities. Because of their focus on stable revenues rather than on growth, the management teams of utility companies do not generally feel the need to retain large sums of revenue to be reinvested into the companies. Therefore, these companies are free to distribute greater percentages of their earnings in the form of dividends to shareholders.
Because of the general stability of their revenues, along with their traditionally high dividend payouts, sectors such as utilities and telecommunications are of particular interest to income investors. Utilities are among the lowest risk securities available, commonly having more than adequate cash flows, excellent credit ratings and stable revenues. Nonetheless, as within any market sector, some companies consistently outperform others. To obtain the best investment performance, investors carefully evaluate companies in order to select those with the greatest overall long-term prospects .