EKS, about a week ago, you expressed concern that utilities may not be a good inflation hedge and you were looking for decent dividend plays as perhaps a more defensive move.
I'm looking for some defensive dividend payers too, but share your concern about whether utilities would provide a hedge against inflation.
Here's what I'm thinking: IF China continues to back off supporting US treasuries, US interest rates rise. IF US buck continues to weaken, that's inflationary. IF US moves away from deflation towards inflation, creditors require a higher nominal interest rate.
Do utility stocks trade more like a bond than an equity because investors are looking for yield? Generally, I think so. If that is the case, then a higher interest rate environment would put downward pressure on utility stocks, much as T-bills have fallen with T-bill yields rising this past week or two.
Given the above, I like the idea of looking for utilities that have another attractive dimension, like nat gas, which seems to be at long-term cyclical lows. I'm also wondering whether it would be a prudent to look at Australia, Canada or Brazil for those dividend payers, to add foreign exchange risk/reward. |
