Why its time to look at European Utility Stocks

The STOXX® Europe 600 Utilities Index can be considered as a proxy for the European utility sector. The index is comprised of 25 utilities from the continent. As of November 25, 2012 the index is down over 58% in the past five years in US $ terms. Since 2008, the index has been on a downtrend trend as shown in the chart below. The sector may be ready for a rebound from the current lows as extreme pessimism haunts European stocks.

Click to enlarge

 

Source: STOXX

How to invest in European Utilities?

Unfortunately there is no European utility sector-specific  ETF available on the US markets for investing in European utilities. ETFs tracking the STOXX utilities index and trading on the European markets include the STOXX® EUROPE 600 UTILITIES ETF by db X-Trackers, iShares STOXX Europe 600 Utilities, SPDR MSCI Europe Utilities ETF and Lyxor ETF STOXX Europe 600 Utilities fund.

Many of these utility stocks are off by double digit percentages due to regulatory issues such as plans to end nuclear power generation by Germany, high uncertainty towards the sector due to the ongoing fiscal crisis in some Eurozone countries, reduction of dividend payments by some companies and investors’ general apathy towards all European stocks. While all these factors are understandable, many of the worries are way overblown. Despite the fall in share prices the sector continues to pay juicy dividends and has the potential to raise dividends when the crisis ends. Another way to look at the current situation is that most of the negative views are already reflected in the current stock prices.

The table below lists the components of The STOXX® Europe 600 Utilities Index with the ADR tickers if available and the current dividend yields:

S.No.CompanyTickerDividend Yield as of Nov 26, 2012Country
1CENTRICACPYYY4.77%UK
2DRAX GRPDRXGYN/AUK
3E.ONEONGY7.25%Germany
4EDFECIFY7.81%France
5EDP ENERGIAS DE PORTUGALEDPFY9.38%Portugal
6ENAGASENGGY6.48%Spain
7ENDESAN/AN/ASpain
8ENELENLAY8.92%Italy
9ENEL GREEN POWERN/AN/AItaly
10FORTUMFOJCY7.27%Finland
11GAS NATURAL SDGGASNY7.12%Spain
12GDF SUEZGDFZY13.35%France
13IBERDROLAIBDRY0.72%Spain
14NATIONAL GRIDNGG5.56%UK
15PENNON GRPN/AN/AUK
16RED ELECTRICA CORPORATIONRDEIY9.83%Spain
17RWERWEOY6.30%Germany
18SCOTTISH & SOUTHERN ENERGYN/AN/AUK
19SEVERN TRENTN/AN/AUK
20SNAM RETE GASSNMRY9.84%Italy
21SUEZ ENVIRONNEMENTSZEVY7.67%France
22TERNATEZNY6.98%Italy
23UNITED UTILITIES GRPUUGRY4.63%UK
24VEOLIA ENVIRONNEMENTVE8.44%France
25VERBUNDOEZVY3.39%Austria

Note: Dividend yields noted are as of Nov 26, 2012.

Investors looking to add European utilities and willing to hold for at least five years can add some of these stocks at current or lower levels in a phased manner.

Disclosure: Long EONGY, VE, RWEOY, FOJCY

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