I nvestors have shunned utility stocks in recent months as the prospect of higher interest rates erodes their appeal. But some are making a comeback.Westar Energy ( WR ), the largest electric utility in Kansas, is in buying range after clearing a 41.40 buy point of a cup-with-handle base Nov. 11. It's also just 3% off a 52-week high.
Like most utilities, Westar's revenue and earnings growth have risen at a slow-and-steady pace of 5% and 1%, respectively, in the past three years. But state regulators gave Westar approval to raise rates by about 4% this month to pay for plant upgrades.
"Cost control and new rates will drive reasonable growth into 2016," JPMorgan said in a Nov. 6 research note. JPMorgan, which has a neutral rating on the stock, also said it sees improvement in 2017 amid cost-cutting and new transmission growth.
Westar is up about 2% this year, roughly in line with the S&P 500, after recovering from a summer swoon. Its long-term dividend growth rate is 3% and the annualized yield is 3.4%, above the S&P 500 average of about 2%. Unlike most companies, Westar continued to hike its payout during the 2008-09 recession.
UBS said Nov. 5 that electric utilities may struggle in coming years as a weak economy and increased energy efficiency cut demand. "We expect cost-cutting" and mergers aimed at cost-sharing to be a key theme, it said.
Despite the headwinds, utility stocks have been on the upswing since early September, whenTeco Energy ( TE ) popped 25% after Canada-based energy company Emera said it would buy the utility for about $10 billion.
Other stocks in the Dividend Leaders screen that have rebounded include Missouri -basedAmeren ( AEE ), which is approaching a 44.81 buy point of a cup-with-handle base.