Deregulation and Competition of Utilities- Though deregulation and competition among utilities progresses slowly, it does increase risk and also requires the reinvestment of capital. Whenever funds are redirected into growth or improvement, dividends will decrease. This is a concern to investors whose primary goal is a steady dividend income.
Management Considerations- Generally, management in the utilities sector is comprised of those of a more bureaucratic bent. Utilities management is also not usually heavily invested in their own companies. Most REITs on the other hand, are managed by more entrepreneurial individuals who are heavily invested in the REIT they manage.
REITs Are Being Discovered- Being much newer on the investment scene, REITs could be poised for an influx of new investors. These dividend conscious investors could leave the utilities sector in favor of the combination of good dividends and growth potential of real estate investment trusts.
Of course nothing is for sure in investments, and one should carefully consider the pros and cons of each. There is some concern that situations such as the Enron debacle could indicate other problems in the utilities sector. One strategy might be to move only a portion of one's utilities investments into REITs. As REITs have a low correlation to utility stocks, this could enhance the diversification of the portfolio.
