Shaking off disappointing earnings results on Wall Street, utilities sector stocks and related exchange traded funds were outpacing the broader markets Tuesday and may continue to strengthen on strong fundamentals.
The Utilities Select Sector SPDR (NYSEArca: XLU) was up 0.6% Tuesday while the S&P 500 index dipped 0.9%. Over the past year, XLU has increased 33.9%, compared to the 17.1% rise in the SPDR S&P 500 ETF (NYSEArca: SPY).
Merrill Lynch analysts argue that many supporting fundamentals should allow investors to maintain a position in the utilities sector after an impressive run over the past few years, reports Lee Jackson for 24/7 Wall St.
The analysts have placed a buy rating on a myriad of high-yielding utilities stocks, such as the AES Corp. (NYSE: AES), which owns electricity to a broad range of customers, including government, residential, commercial and industrial users, as well as the wholesale market. Additionally, the company has operations in many overseas regions. AES makes up 1.4% of XLU.
Dominion Resources (NYSE: D) has a steady history of raising dividends, with the company expected to raise dividends 7% this year. Moreover, observers believe that new EPA rules may provide a tailwind for the energy producer. D makes up 7.5% of XLU.
Edison International (NYSE: EIX) tops the Merrill Lynch list of utility stocks. The company recently raised its quarterly dividend to shareholders by 17.6%, providing strong confidence in its cash flow. EIX is 3.6% of XLU.
Additionally, PPL Corp (NYSE: PPL) is among the leading utilities companies that plans on improving regulated operations and lower earnings volatility associated with competitive operations. The company is also diversified away from the U.S. with U.K. exposure. PPL is 3.9% of XLU.