Investors who hold a significant amount of SPY in their portfolios may feel the need to change the subject when it comes to discussing the SPDR S&P 500 ETF Trust. While holding SPY has been successful this year, the market is now at an inflection point where it may be time to consider other options. Only three stocks – Apple, Nvidia, and Microsoft – make up 21% of the S&P 500, leading to a need for diversification within the market.
One potential area for investors to consider is utilities, which are often overlooked but can provide stable income and potential for growth. Utility stocks benefit directly from falling interest rates, and with the Federal Reserve expected to cut rates, now may be a good time to consider investments in this sector. The Utilities Select Sector SPDR ETF has seen a 24% rally over the past year due to lower Treasury rates.
Investors looking to maximize their dividend income may consider funds such as Cohen & Steers Infrastructure Fund and Reaves Utility Income, which offer higher yields and exposure to a variety of utility and infrastructure stocks. DNP Select Income is another fund that pays a substantial monthly dividend of 6.5 cents, providing a 9.2% annual yield. Despite trading at a premium earlier in the year, DNP’s premium is now down to 4%, making it an attractive option for income investors.
Individual utility plays such as Dominion Energy and American Electric Power may also be worth considering. Dominion Energy, which faced a dividend cut in 2020 due to excessive debt, may be a good opportunity for investors willing to take a contrarian approach. American Electric Power, on the other hand, is a regulated utility that has consistently increased its earnings and dividend over the past decade, making it a favorite among dividend growth investors.
As interest rates cool down, AEP’s dividend magnet could potentially pull its stock price higher, offering investors the potential for significant upside. AEP’s earnings have consistently risen, leading to a 76% increase in its dividend over the past decade. While the stock price has not fully reflected this growth, it has the potential to catch up as investors recognize the stability and growth potential of the company. Overall, diversifying into utilities and high-yield dividend funds may be a wise move for investors looking to capitalize on the current market conditions.
