A recent article in Barron's advocated buying utility stocks due to the predictable income stream.  In the excellent piece by Andrew Bary, "Slow and Steady Wins the Race," it was stated that, "With secure 4% yields, electric utilities offer reasonable growth and defensive qualities."  Buying real estate assets can be far superior and as secure when done with a passive approach as a long term investor.

 Over the last two centuries, investing in real estate, not utility stocks, has created about 90% of the world's millionaires.  During The Great Recession, when utility stocks and others plunged, the level of rental income in the United States actually increased.  Rental income in the United States rises about 5% annually.

A passive investor with a long term approach will do best in real estate, whether through actually owning the property or lending the money to someone else through a private mortgage note.  Jerry Cohen, Founder and President of EquityBuild, a real estate investment firm, reports 17% annual returns from transactional deals.  The returns from the operations of EquityBuild Finance, its funding arm, have been 12%.  Investing in real estate assets through experienced professionals like that is always the most rewarding for the individual.

As those returns are certainly higher than the 4% dividend of a utility stock, the investment is just as secure.  There is a wide range of real estate that can invested in through a number of ways to enhance the return while providing protection.  That provides both security and diversity, which offers all that a utility will provide.

If looking for an income stream, which is why investors generally select utility stocks, rental real estate is far superior.  Rental real estate can be bought at a price-to-earnings ratio of less than 10 (a $100,000 property that rents for $1000 a month).  The average-to-earnings ratio for a utility stock is around 15.

The income stream is far better than the 4% posted by utilities.  A house bought for $100,000 that rents for $1000 a month provides an income of around 12% annually.  That is about triple the rate provided by utility stocks.

In addition, the 5% increase in rental income provides for more income the longer a property is owned.  While $1000 a month would be earned in rental income for year one, by year fifteen more than $2000 a month in rental income would be booked.  At the end of a thirty-year mortgage, the rent would be over $4000 a month.  In addition, the more than $50,000 in rental income would be coming from a house without a mortgage!

There is also the control issue.  When investing in real estate, there is far greater control.  The investor can set the terms of the rent or the private mortgage note.  With a utility stock, everything is left to the management of the company, and the vagaries of the stock market.

In Bary's Barron's article, Dan Eggers, an analyst with Credit Suisse, is quoted as saying about utility stocks that, "We like the basic investment thesis of regulated utilities....a high single-digit annual return in a low risk package."  Real estate can provide higher returns for the passive investor with a long term approach with a flow rental income that has historically increased about 5% every year.