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Frequently Asked Questions (FAQs) on Stocks

  1. What is a utility stock?

  2. What kind of investor would buy utility stocks?

  3. What's the downside to investing in utility stocks?

  4. Are utility stocks and blue-chips stocks guarantee always to pay dividends?

  5. Are utility stocks bought for growth or income?

  1. What is a utility stock?
    A utility stock is evidence of ownership in electric generating plants, telephone companies, gas, water or sewer systems--any company that operates public utility services.
     
  2. What kind of investor would buy utility stocks?
    Utility stocks are appropriate for income-oriented investors. They usually pay dividends. these dividends will provide income for an investor. When interest rates are down, you will often find the dividend yield of a utility stock better than the yields on bank accounts and CDs. An added plus to investing in utility stocks is the potential growth of the underlying shares as well as periodic dividend increases, with well-run companies.

     
  3. What's the downside to investing in utility stocks?
    Two things can go wrong with a utility stock investment:
     
    1. Lack of appreciation in share price. Utility stocks are interest rate sensitive and therefore generally do not perform well in times of rising interest rates.
    2. A dividend cut or discontinuation of the dividend could be disastrous to an investor. Dividends are based on the successful running of the company.
  4. Are utility stocks and blue-chips stocks guarantee always to pay dividends?
    Dividends are paid out of earnings. Therefore, No earnings, no dividends! Dividends can be suspended if profits are off and the board of directors decides that reinvestment of available cash is preferable to declaring a dividend. Many companies have paid dividends for many years without missing a single payment. Your broker has a listing of corporate dividend payments in his Standard & Poor's stock guide. You can check with him to see how long your company has paid dividends.
     
  5. Are utility stocks bought for growth or income?
    Generally, an investor looks for income first and growth second when analyzing utility stocks. The best-case scenario is a combination of the two.

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