The Appeal of ‘Boring’ Utility ETFs

Includes: JXI, PUI, RYU, XLU
by: Tom Lydon

Dividend-yielding ETFs are hugely appealing to investors in this climate of low-yields. Consider, however, the portfolio-stabilizing, dividend-yielding effect of utilities.

  • Utilities may not be the most exciting asset class, but many stocks in this sector boast yields of 4% or more, according to iStockAnalyst.
  • Companies in the utilities business usually operate as state licensed monopolies, which allows them to take in a steady cash flow, and they usually don’t run into financial problems if the economy does poorly, which means that dividends often remain relatively consistent.
  • The utilities sector is also a leading indicator of interest rates, writes Michael Lombardi for Daily Markets. As interest rates rise, the price of utilities usually drop since investors would start shifting to higher-yielding assets.

The sector can be sub-categorized into electricity, natural gas and water utilities, with around 156 listed utility stocks, according to iStockAnalyst. Utilities still have low price-to-earnings ratios and earnings are expected to grow next year.

Picking single stocks is an option, but you can also get easy exposure to the sector with ETFs. PowerShares Dynamic Utilities (NYSEArca: PUI) yields 5.4% right now. Other funds with appealing yields these days include Rydex S&P Equal Weight Utilities (NYSEArca: RYU), yielding 3.3%; iShares S&P Global Utilities Secto (NYSEArca: JXI), yielding 5.4%; and Utilities Select Sector SPDR (NYSEArca: XLU), yielding 4%.

Read the disclaimer; Tom Lydon is a board member of Rydex|SGI.

Max Chen contributed to this article.

Disclosure: None