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Are Utility Stocks About To Get Whacked?

Investors count on utility stocks like Southern Company (SO) and Duke Energy (DUK) for their stable profits and high dividend yields. Utilities are about as rock-solid a business as one can find. Electricity is virtually a matter of national security, and a necessity of modern life. This keeps demand for power generation strong, and profits for utilities keep rolling in like clock-work.

With their profits, utility stocks reward investors with strong dividends, usually between 4%-5%. But a major headwind stands to take utility stocks down a notch this year, in the form of rising interest rates. Now that the Fed has wound down its QE and the market is anticipating the first Fed rate hike, utility stocks have fallen in recent trading sessions. Utilities are in danger from rising rates, as their costs of capital would rise since they have debt-heavy capital structures.