Reference no: EM132821280

Summary: Key Points in the Article.

• The potential for a change in tax law is making utility stocks attractive again. If Joe Biden is successful in raising taxes, then utility companies will be able to pass the higher taxes along to consumers through rate hikes. The higher revenue could increase earnings and improve the balance sheets of many utilities. Given the stock prices of the overall sector is up by only 1% this year it could be a good time for many investors to buy utilities.
• Wealthy investors could be attracted to utility stocks due to the high dividends that currently outperform government bond yields. These individuals will likely need additional income to pay their expected higher tax bill and buying stocks with consistent dividends would be a good strategy to generate this income. Utility stocks are also defensive stocks that perform well even when the economy is doing poorly. They would provide stable income even if the next president shuts the economy down due to Covid-19.

Problem 1: What factors might make high dividends attractive to wealthy investors in the next few years?

Problem 2: Why are utilities considered to be defensive stocks?

Problem 3: How could a tax increase help utility companies?