Page 40 of last weekend’s Barron’s (see here) discussed credit ratings as something to consider when looking at company dividends. The article presented a table with a number of industrial companies all with credit ratings above A-. I recreated the table for North American utilities with credit ratings above A-. There were only 15 utilities that met this criteria.
It is interesting to see that even though these companies have the highest credit ratings in the sector, many of their dividends are above the level of the XLU. Some of these high yields have easy explanations. For example, SO has some big construction projects that are creating extra risk for the company, so it makes sense that the yield would be high. For more about the issues at SO, see my last Seeking Alpha article.
Credit rating may not be as relevant for utilities as for other industries, because of all the regulation of the industry. Regulators could support a utility increasing its debt to help lower rates. The higher debt might lead to a lower credit rating, but as long as the regulators are supportive of that level it gives investors an extra layer of safety that companies in other industries can’t receive.