how investors trade utilities
because utility stocks pay reliable dividends investors often favor them over lower dividend paying equities after the financial crisis the federal reserve cut interest rates to stimulate the economy 3 as a result investors flocked to utilities as safer investments as utility companies are a viable defensive choice for investors during macroeconomic downturns if interest rates rise investors can find higher yielding alternatives than utilities when a utility pays a dividend yield of 3 but increases in interest rates increase treasury bond yields to 4 the utility company would have to increase its dividend payout to match the rising yields aside from investing in the individual stocks of utility companies investors may also purchase regional utilities or invest in exchange traded funds etfs or sector funds containing a basket of utility stocks of companies located throughout the u s the fidelity select utilities portfolio fsutx includes the holdings of 29 utility companies as of march 2022 and an annual dividend yield of 1 52 4 the utilities select sector spdr fund xlu is one of the largest utility sector funds with 15 5 billion in net assets and is one of the most actively traded utility etfs with more than 18 million shares traded daily the fund typically pays a dividend yield of around 3 5the xlu s dividend yield beats the yield for the s p 500 equity etf spdr s p 500 trust etf spy which as of july 2022 pays around 1 56 pros and cons of the utilities sectorutilities are stable investments that commonly provide a regular dividend to shareholders making them a popular long term buy and hold option dividend yields on utility stocks trend higher than those paid by other equities during times of economic downturns with low interest rates utilities become attractive they exhibit lower volatility and provide a desirable source of predictable investment returns from the dividends they pay on their shares profit margins for utilities can vary from company to company depending on their location and the regulations they face utilities however face intense regulatory oversight and require expensive infrastructure that needs routine updating and maintenance to meet these infrastructure needs utility companies often float debt products that in turn increase their debt loads this debt also makes these services particularly sensitive to interest rate risk should rates rise the company must offer higher yields to attract bond investors stable long term investments and regular dividendssafe investments during times of economic downturnsvarious investment options including bonds etfs and individual company stocksintense regulatory oversightexpensive infrastructure that requires continual upgrades and maintenancebecome less attractive when interest rates are high and bond yields are highpublic utility companiesthe utilities sector consists of companies that provide electricity natural gas water sewage and other services to homes and businesses public utilities are privately owned companies that are regulated by public utility commissions that operate at a variety of jurisdictional levels usually at the state level these commissions are overseen by the national association of regulatory utility commissioners naruc members are responsible for assuring reliable utility service at fair and reasonable rates 6 in 2022 utility companies in the united states with a strong investor interest included 