Utilities May Be Good Defensive Dividend and Options Income Stocks If Interest Rates Ever Fall

Utilities can be good defensive stocks in bear markets, but that doesn't mean they won't fall with the markets.

By Donald E. L. Johnson

Cautious Speculator

• If interest rates stabilize or fall, utilities could be good defensive, long-term income investments for investors who sell covered calls and cash secured puts for premium income.

• XLU, D, DUK and SO all look like interesting options trading and income opportunities.

• I sold puts on D today and am trying to sell puts on DUK, SO and DOW. I’d rather not own the ETF.

As long as interest rates stay where they are or fall, utilities may be good defensive and dividend stocks for investors who sell cash secured puts and covered calls for options premium income.

While it may be early to get into utilities, several utilities have moved up recently despite concerns about high interest rates and a moderate or deep recession, which could last for months or years, depending. Nobody can predict interest rates, inflation or stock prices. All we can do is trade for income and capital gains and manage our risks.

XLU, the utilities ETF, Duke Energy (DUK) and Southern Co. (SO) have some of the best momentum among utilities. Dominion Energy (D) appears to be more speculative and while it has a bullish price objective of $73 per share on point and figure charts, its momentum is weaker than the others. Its 4.4% dividend is also higher than the others.

My Trades

I sold D ($60.33) 1.20.23 (28 days) $57.50 strike (Delta -7%, OTM 73.235) puts for $0.65 per share, or $65 per 100-share option. The immediate return will be 1.077% and the annualized return if about the same trade is done 13 times over the next 12 months would be about 14.45%. That assumes that the put is not assigned at the $57.50 strike, which is 4.7% below the price of the stock when I did the trade. If D is assigned, the dividend yield will be 4.591% plus covered calls premiums, which I’ll sell if I buy the stock.

I’m also trying to sell puts on DUK, DOW and SO, but I may have to wait for the prices of those stocks to correct a bit to get the RoR I want.

If I get those trades filled today or next week, I’ll post the trades in the comments section.

LINKs:

Home Page. See previous articles on other trades, stocks and watch lists. If you read several of these articles, you’ll learn how my strategy is meant to work. No guarantees. Links to useful web sites are on the lower right corner of the home page. Scroll down.

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How to Beat Inflation Tax, Bear Market Tax With Dividend Stocks, Covered Calls, Cash Secured Puts, by Donald E. L. Johnson.

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Beware. Like all investing, trading stocks and options is risky. I’m an active private speculator who trades covered calls and sells puts on stocks for my accounts. I am not a professional analyst nor a financial advisor. I don't take and won't take responsibility for how other people trade. This article is for educational purposes only. It is not advice. The data presented looked accurate at publication time except for intra-day fluctuations, but I can’t guarantee the accuracy. Traders should do their due diligence. I reserve the right to trade any of the listed stocks and options at any time. I receive no compensation for producing this content nor for any links.