Utility ETFs: Growth and Income, All In One

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Includes: IPU, JXI, PSCU, VPU, XLU
by: Tom Lydon

Utility exchange traded funds (ETFs) nearly always look appealing for one reason or another. These days, they’re attracting investors who are looking for both a defensive stance and some income.

We’re in uncertain times – the economic recovery is progressing very slowly and yields are just about nothing. Most investors are just looking to protect what they have and consider themselves lucky if they can manage to do so. For that reason, the utility sector has become attractive.

Ron Rowland at Money and Markets agrees: he points out that the yield on utility stocks are around 3% to 5%, better than what’s seen on most Treasury bonds. Rowland also notes that products utility providers deliver – water, natural gas, electricity – are things we really can’t do without.

Aside from the lure of both growth and income, U.S. utilities are alluring because our electrical grid is so outdated and in need of some serious upgrades.

Meanwhile, intelligence officials have raised concerns in recent years about growing surveillance of the electric grid by Chinese and Russian cyber-spies, which The Wall Street Journal reported last year. Siobhan Gorman for The Wall Street Journal reports that many of the security vulnerabilities are fixable, including a failure to install software security patches or poor password management. Many of the fixes would be inexpensive, according to the Idaho National Lab, an Energy Department facility that conducted the study. This may also pose another window of opportunity for utility shares to spike if upgrades go smoothly.

You can find all the utility ETFs on our ETF Analyzer. There are domestic funds, international ones and emerging market utilities, as well. From there, sort by yield to see who’s paying out the most right now. Some of the highest yielders include:

Utility ETFs

  • SPDR S&P International Utilities (NYSEArca: IPU)
  • iShares S&P Global Utilities Sector (NYSEArca: JXI)
  • Vanguard Utilities ETF (NYSEArca: VPU)
  • Utilities Select Sector SPDR (NYSEArca: XLU)
  • PowerShares S&P SmallCap Utilities (NASDAQ: XLUS)

Tisha Guerrero contributed to this article.