Sure & Steady Securities

They may be a boring bunch, but treasuries, munis and utilities look like solid investments this year

help them better compete.

Regardless of changes facing the energy sector, utilities look attractive for several reasons. For one, their average yield is currently 4.5%, compared with the puny 1.5% average dividend yield of the S&P 500. Second, even if corporate earnings dip, Wall Street estimates the utility group will still grow 4% or so in 1999. Put the two together, and there’s potential to reap a 8%-10% total return-especially if interest rates fall and investors flock to utilities. “These are safe companies in a stable economic sector,” says Randall Eley, chief executive officer of the Edgar Lomax Co., an institutional money management firm in Springfield, Virginia. “They’re not the most profitable companies to own in a bull market, but these stocks will prove very valuable to a portfolio in a bear market.”

That indeed was the case in 1998, a year when the utility average was up 13% (as of press time), nearly matching the 16% rise in the Dow Jones Industrial Average.

Since each utility stock has a different outlook, you might want to opt for a mutual fund that specializes in the sector. Some had average gains near 10% for the year, as of October 31. Moreover, the average rate of return for utility funds was 22% over the same period. According to our Morningstar Screen, the IDS Utilities Income A led the pack with an average annual three-year total return of almost 21%.

If you’re looking to invest in individual stocks, Eley suggests that you take a look at Southern Co. (NYSE: SO) and American Electric Power (NYSE: AEP). Savannah, Georgia-based Southern, which provides power throughout the Southeast, has a dividend yield of 4.6% and trades at 17 times earnings, while American Electric Power has a dividend of 5.2% and trades at 15 times earnings. Accord-ing to Zack Investment Research, Southern’s earnings are projected to grow by 4.7%, vs. 3.2% for American Electric Power.

As a whole, these investments provide sound offerings in your portfolio diversification strategy. Treasuries, munis and utilities will guarantee you a worry-free night’s sleep as income continues to roll in.

Top Government Bond Funds

TOTAL RETURNS*
Bond Name

Y-T-D

12-Month

Average

3-Yr. Average

Annualized

5-Yr.

Annualized

Maturity

Telephone

Number

Dupree Interim Govt. Bond

7.28

8.67

7.58

5.93

3.2

800-866-0614

Montgomery Short-Duration Bd R

7.09

8.09

7.10

6.43

2.8

800-572-3863

Vanguard Limited-Term Tax-Exempt

7.34

8.29

6.76

6.06

3.3

800-341-7400

Source: Morningstar Inc., Chicago

Leading Muni Bond Funds

TOTAL RETURNS*
Bond Name

Y-T-D

12-Month

Average

3-Yr.

Annualized

5-Yr.

Annualized

Average

Maturity

Telephone

Number

Strong Short-Term Muni Bond

4.68

6.16

5.86

4.2

2.8

800-368-1030

USAA Tax-Exempt Short-Term

4.39

5.58

5.27

4.87

2.8

800-382-8722

Vanguard Limited-Term Tax-Exempt

4.38

5.42

4.95

4.61

3.30

800-662-7447

Source: Morningstar Inc., Chicago

Best Bets In Utilities Funds

TOTAL RETURNS*
Bond Name

Y-T-D

12-Month

Average

3-Yr.

Annualized

5-Yr.

Annualized

Telephone

Number

IDS Utilities Income A

11.03

27.36

20.72

800-328-8300

Fidelity Utilities Growth

12.91

26.43

20.62

14.66

800-544-8888

American Century Utilities Growth

14.84

34.95

20.58

13.70

800-345-2021

Source: Morningstar Inc., Chicago
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