Dividend-yielding exchange traded funds (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. [Opportunity Lights Up Utility ETFs.]
- 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.
For more information on utilities, visit our utilities category.
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.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Mr. Lydon serves as an independent trustee of certain mutual funds and ETFs that are managed by Guggenheim Investments; however, any opinions or forecasts expressed herein are solely those of Mr. Lydon and not those of Guggenheim Funds, Guggenheim Investments, Guggenheim Specialized Products, LLC or any of their affiliates. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.