Proprietary Data Insights
Financial Pros’ Top Utility ETF Searches in the Last Month
Financial Pros Uncover the Utility ETF to Buy
Utility stocks haven’t had an easy go of things lately.
Interest rates made their dividend yields while simultaneously making any new debt they issued more expensive.
Then there’s Hawaiian Electric and their mess.
Yet, financial pros have started to look at the sector with more interest, specifically the S&P Utilities XLU ETF.
With a dividend yield at 3.55%, it pays less than most Treasuries.
So, is this ETF cheap enough to consider for your portfolio?
Key Facts About XLU
Every time you flick the switch or flush the toilet, you can thank your utility company.
Most of us don’t have a choice in who we use, which makes their business model so lucrative.
Utility companies produce power, gas, and water through a capital-intensive, but simple model.
Since we can’t live without power or water, their revenues rarely fluctuate much. However, they operate on such thin margins with high debt leverage that even a mild recession can cause serious problems.
The XLU is the most popular utility ETF, holding 31 of the largest power, gas, and water companies in the U.S.
Utilities are broken down into electric, water, gas, and multi (provide two or more of the other three).
While the regular dividend payouts provide some cushion against drawdowns, utilities don’t make much over time.
In fact, over the last 5-years, the XLU’s total returns, including dividends, are less than 30%, making it the second worst-performing sector in the S&P, right behind real estate.
There are only a few utility ETFs out there. Unfortunately, only three have enough volume that we’d consider recommending: XLU, UTSL, and VPU.
What you’ll notice below is the leveraged funds come with pricey expense ratios.
Notably, the volumes for every ETF other than the XLU are low. And all of them have a worse 5-year performance.
Our Opinion 10/10
The XLU isn’t just the best utilities ETF out there; it’s the ONLY one we’d even consider.
Others fail to impress with low volumes, high expense ratios, and excess leverage.
There’s simply no reason to choose another utility ETF than the XLU.
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