These Dividend Stocks Could Deliver 100%-Plus Returns

You probably didn’t notice… But interest rates have fallen about 10% this year.

This is a big deal…

Interest rates have fallen from 3% at the start of the year to about 2.7% as I write. (That’s the interest rate on the standard U.S. government 10-year bond.)

Not many people are talking about this big fall in U.S. interest rates.

[ad#Google Adsense 336×280-IA]But they should be.

It has caused issues… but it has also created opportunities.

You see, when interest rates go down, income-oriented investments go up in value.

And one sector of the market typically does extraordinarily well in this environment.

I’m talking about utility stocks.

Normally, I have no interest in utility stocks…

These are the companies that keep your lights on at home, for example. They are often heavily regulated, as the government doesn’t want them gouging customers.

Utilities are typically boring businesses – and boring stocks. But not always…

When two specific things come together… you can make triple-digit gains in utility stocks. That was the case in 1956, 1974, and 2003. Today is no different.

The story is simple…

Any time the dividend yield on utility companies is one percentage point or more higher than the interest rate on 10-year Treasury bonds, you want to buy utility companies.

They’ve often delivered triple-digit returns over the next couple years.

You can see this in the chart below…

Right now, the dividend yield on utility companies (at roughly 4%) is about one percentage point above Treasury bonds (at below 3%). Historically, the dividends on utility companies have been about one percentage point LESS than the government bond yield.

It wouldn’t be a stretch for the stock prices of utility companies to soar from here. That would push the dividend yield on utilities down below government bond yields.

A fall down to 2% would put utility stocks around 1% lower than government bonds. That’s back in line with historical norms, based on their dividends.

If that happened, you could make a 100% return on utility stocks. For example, let’s say the price of a utility stock is $10 a share, and it pays a $0.40 annual dividend. That’s a 4% dividend yield. If the stock price goes to $20, that $0.40 annual divided becomes a 2% dividend yield – and you made 100% in capital gains on your utility stock.

I am not predicting that we’ll see a 100% move now – that would be a huge move higher for utility stocks. But based on history, the conditions are in place for a big move in the sector.

And based on history, triple-digit returns are possible.

You can easily invest in a basket of utility companies with the Utilities Select Sector Fund (XLU).

Shares of XLU pay a solid 4% dividend. And if utility stocks continue their move higher, you could pocket potentially large capital gains as well.

Check out shares of XLU…

Good investing,

Steve

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Source: DailyWealth