Three Utility ETFs Worth A Look
August 31, 2011 Leave a comment
In a time when fear and uncertainty are causing the stock market to take a roller coaster ride, the attractiveness of the utility sector remains intact, and for good reason.
In general, the utility sector is known for shooting off decent dividends and carries a relatively high degree of safety. The sector remains a safe haven and tends to shine in times of uncertainty because the services that it offers are an indispensible part of life, enabling utilities to have reliable earnings streams.
Another reason utilities remain attractive is because they have overcome many of the regulations that once hindered their performance by driving up operational costs.
Additionally, in a low growth environment, which the U.S. currently is in, utilities provide a yield that is greater than their debt, further boosting their appeal. Currently, major utility players are generating yields of 4%-5%.
Lastly, there doesn’t seem to be much improvement in the overall health of the U.S. economy. Unemployment levels remain stubbornly high and don’t seem to be improving; consumer confidence remains wary in both the current state of the economy and where it is heading in the near-term future.
Some diversified ways to gain access to major utilities like Exelon Corporation (EXC), Southern Company (SO), Dominion Resources (D) and Duke Energy (DUK) include:
- the Vanguard Utilities ETF (VPU)
- the iShares Dow Jones US Utilities Sector Index Fund (IDU)
- the Utilities Select Sector SPDR (XLU)
When investing in these ETFs, it is equally important to do so with caution. A good way to implement this is through the use of an exit strategy which identifies specific price points at which a downward trend is highly likely to occur.
Disclosure: No Positions
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