Investors seeking a safe hideaway for their money this year will continue to find a haven in utility stocks.
Utility issues, considered a good defensive vehicle in hard times, offered a refuge for investors during the economic uncertainty of 1991.
As interest rates tumbled, investors took their money out of CDs and money-market mutual funds in quest of higher yields.
Toward the close of the year, the average yield of the highest-dividend-paying utilities, 7.5 percent, was about twice that of the average New York Stock Exchange dividend-paying stock, 3.1 percent. That's a few percentage points more than rates being paid by money-market funds.
"People are looking for yield substitutes. Utilities, in that sense, look attractive," said Peter Cooke of Pierson Capital Management in Philadelphia.
Investors are not buying utilities for growth. They're buying them for income, Mr. Cooke said.
"On a defensive basis, they're still OK," he said. "We're not buying utilities, but utilities are an attractive defense area to be in, given the economic outlook."
Like bonds, electric-utility stocks tend to rise in price when falling interest rates enhance the attractiveness of the dividends they pay.
Furthermore, utility stocks can offer something bonds typically cannot: the hope of future dividend increases to counter the erosive effects of inflation.
In the last 12 months, the dividends of many utility companies were raised. As dividends increase, stock-price appreciation generally follows.
However, if the economy picks up steam and interest rates rise, financial advisers say, investors might want to move out of utility stocks and into more cyclical or growth- oriented equities.
"I can't see buying a [utility] company that yields 5.5 percent if you can get that in your checking account," said Edward J. Tirello Jr., analyst with Smith Barney, Harris Upham & Co. "But I do have an interest in companies yielding 7.5 percent."
Charles Carlson, editor of the investment advisory service Dow Theory Forecasts in Hammond, Ind., warns that not all utilities are created equal.
Also, for some electric-utility stocks, the biggest gains already might have occurred, Mr. Carlson said.
"Utilities remain excellent investments for conservative, income-oriented investors," he said.
"But selectivity is crucial, and the current environment favors utilities with bright growth prospects," he cautioned.
