Investing in the Stock Market

Investing in the stock market requires that you stay one step ahead of your investments and know when to sell them to avoid financial losses. When you want to invest in something that you do not constantly have to monitor or worry about, you may be drawn to utility stocks. Before you add these assets to your portfolio, you should learn about some of the benefits that can come with investing in utility stocks.

Reliable Dividend Income

People who want a regular and reliable source of dividend income may be satisfied to invest in utility stocks. These stocks are renowned for their ability to provide predictable dividend income without the risk or price volatility found with other types of stocks.

stock market

The dividends that you can get from utility stocks are typically one to three percent higher than the ROIs on guaranteed instruments. This fact alone can make them a solid alternative to certificates of deposit or savings bonds.

Liquidity

Utility stocks are also more liquid than other types of stocks in your portfolio. They can be sold at anytime with relative ease.

In fact, you can sell them without paying an early withdrawal penalty. Their liquidity makes them more appealing than bonds or CDs.

Down Market Protection

Utility stocks are also well appreciated for their ability to withstand down markets. They can hold their value without being negatively impacted like other stocks and mutual funds.

Much of their ability to hold their price in bear markets comes from the fact that the government allows many utility companies to act as monopolies. It would be imprudent for several utility businesses to lay pipes, gas lines, and telephone cables in the same area. The fact that these companies can essentially function as monopolies in the area where they do business gives them a higher degree of stability and helps their stock hold their value even in down market conditions.

Tax Advantages

Finally, utility stocks offer tax advantages not found with stocks, bonds, CDs, and other types of investments. Primarily, if you own utility stocks for at least 60 days out of a 121 day period of the ex-dividend date, you can have the dividends from these stocks labeled as qualified dividends.

When they are classified as qualified dividends, you can then pay a lower capital gains tax rate than dividends and interest paid from stocks, bonds, CDs, and other investments. Interest from bonds and CDs must be taxed as ordinary income if it is paid outside of an IRA or other type of retirement account, in fact.

Given these perks of investing in utility stocks, you may wonder how you can find them and in what utility companies to invest. You can get started adding utility stocks to your investment portfolio by consulting with a certified management accountant like James Dondero. Chartered financial analysts like James Dondero and other CFAs can pinpoint the utility stocks that will give you the dividend income and tax benefits you want from these types of investments.

About James Dondero: James Dondero is a graduate of the University of Virginia’s McIntire School of Commerce. His career spans more than 30 years during which he worked for American Express and the Protective Life GIC subsidiary. He is now the co-founder and the president of Highland Capital Management, L.P. in Dallas, Texas.

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