By Philip van Doorn, MarketWatch
Utility stocks have not only soared during the past 12 months, they have also measured up well over the long haul
It may not surprise you that utility stocks have fared well as interest rates have declined, but a closer look at the sector may genuinely shock you.
As discussed when we reviewed the best-performing stocks of 2019 (link), the utilities sector of the S&P 500 was the benchmark index's top performer in the third quarter. But a closer look at 12-month total returns for the sectors, the full index and the Dow Jones Industrial Average is enlightening, and so are the longer-term figures.
Here's how the sectors and the broad indexes have performed during 2019, for 12 months and for longer periods:
S&P 500 Sector Total return - 2019 through Oct. 1 Total return - 12 months Total return - 3 years Total return - 5 years Total return - 10 years Total return - 15 years Total return - 20 years Information Technology 30.3% 7.1% 82% 133% 395% 461% 187% Real Estate 28.4% 24.5% 33% 71% 310% 284% N/A Utilities 25.0% 27.1% 46% 82% 230% 351% 357% Consumer Staples 22.9% 16.6% 25% 56% 221% 325% 427% Consumer Discretionary 21.5% 1.8% 54% 94% 417% 371% 383% Communications Services 20.6% 4.8% 9% 29% 149% 166% 25% Industrials 19.6% -1.9% 35% 58% 253% 234% 290% Financials 17.1% 1.4% 51% 63% 185% 62% 138% Materials 14.4% -0.7% 27% 30% 146% 191% 289% Health Care 4.6% -5.0% 31% 54% 280% 305% 339% Energy 3.6% -22.2% -10% -23% 39% 116% 222% S&P 500 Index 19.1% 2.6% 44% 67% 252% 255% 237% Dow Jones Industrial Average 16.0% 2.1% 56% 79% 259% 281% 316% Source: FactSet
(All returns in this article include reinvested dividends.)
Look at the bottom of the table. The 12-month returns have been paltry. This year's euphoria is really only a recovery from the doldrums of the fourth quarter of 2018, when the S&P 500 was down 13.5% and the Dow was down 12%. If the period had closed on Christmas Eve, the S&P 500 would have been down 19% for the fourth quarter, and the Dow down 18%.
So the 12-month figures are more meaningful. It is understandable that the utilities and real estate sectors -- considered dividend-income investments -- have fared well as the yield on 10-year U.S. Treasury notes has declined to 1.59% from 3.05%.
Here's how the utilities sector's returns have ranked against the others for all the periods:
Total return period Utilities sector rank 2019 through Oct. 1 3 12 months 1 3 years 4 5 years 3 10 years 6 15 years 3 20 years 3 Data source: FactSet
This "boring" sector has measured up well -- it's worst ranking is sixth for 10 years, a period during which big tech companies have performed very well, taking the market-capitalization-weighted S&P 500 along with it. But the utilities sector has been ranked in the top half for all other periods and third for 15 and 20 years.
And it is possible, even likely, that interest rates will head even lower. The Federal Reserve is under pressure to lower short-term interest rates further as economic reports show a slowdown in growth, and the central bank may take other steps to push interest rates lower, as central banks in other developed economies have done.
For example, Germany's 10-year government bond now yields minus 0.55%.
Exchange-traded funds that track the S&P 500 utilities sector include the Utilities Select Sector SPDR ETF (XLU), which does so on a market-cap-weighted basis with low annual expenses of 0.13% of assets. The Invesco S&P 500 Equal Weight Utilities ETF (RYU) has an annual expense ratio of 0.40%.
Two examples of utility ETFs that take a broader approach with very low expenses are the Fidelity MSCI Utilities Index (FUTY), which has an expense ratio of 0.08%, and the Vanguard Utilities ETF (VPU), with expenses of 0.10%.
A list of the entire sector
Here are the 28 stocks that comprise the S&P 500 utilities sector, sorted by dividend yield:
Company Ticker City State Dividend yield PPL Corp. US:PPL Allentown Pennsylvania 5.27% Dominion Energy Inc. US:D Richmond Virginia 4.52% Southern Co. US:SO Atlanta Georgia 4.01% Duke Energy Corp. US:DUK Charlotte North Carolina 3.93% CenterPoint Energy Inc. US:CNP Houston Texas 3.85% AES Corp. US:AES Arlington Virginia 3.36% Edison International US:EIX Rosemead California 3.32% FirstEnergy Corp. US:FE Akron Ohio 3.17% Consolidated Edison Inc. US:ED New York New York 3.15% Entergy Corp. US:ETR New Orleans Louisiana 3.10% Public Service Enterprise Group Inc. US:PEG Newark New Jersey 3.05% Pinnacle West Capital Corp. US:PNW Phoenix Arizona 3.03% Exelon Corp. US:EXC Chicago Illinois 3.02% American Electric Power Co. Inc. US:AEP Columbus Ohio 2.87% Evergy Inc. US:EVRG Kansas City Missouri 2.87% DTE Energy Co. US:DTE Detroit Michigan 2.84% NiSource Inc. US:NI Merrillville Indiana 2.69% Sempra Energy US:SRE San Diego California 2.65% Alliant Energy Corp US:LNT Madison Wisconsin 2.63% Eversource Energy US:ES Springfield Massachusetts 2.51% Xcel Energy Inc. US:XEL Minneapolis Minnesota 2.49% WEC Energy Group Inc US:WEC Milwaukee Wisconsin 2.48% Ameren Corp. US:AEE St. Louis Missouri 2.39% CMS Energy Corp. US:CMS Jackson Michigan 2.39% NextEra Energy Inc. US:NEE Juno Beach Florida 2.15% Atmos Energy Corp. US:ATO Dallas Texas 1.86% American Water Works Co. US:AWK Camden New Jersey 1.61% NRG Energy Inc. US:NRG Princeton New Jersey 0.31% Source: FactSet
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10-08-19 1011ETCopyright (c) 2019 Dow Jones & Company, Inc.