US utilities trended primarily downward in June, which was the worst month for the sector so far this year. The main reason behind the fall could be the sharp increase in the Treasuries’ yield for the period. In June 2017, the ten-year US Treasury yield jumped from 2.18% to 2.35%. During the same period, Utilities Select Sector SPDR ETF (XLU) fell nearly 5%.
Xcel Energy (XEL) stock has followed utilities at large and fell ~5% in June, but so far this year, XEL has managed to gain more than 10% overall.
Xcel Energy stock outperforms peers
The chart above shows the comparative stock price movement of Xcel Energy and peers (XLU) along with those of broader markets (XPY). In the past 12 months, broader markets have harshly beaten utilities, with the former gaining 15% and the latter correcting by nearly 2%. Xcel Energy grew by roughly 2% during the same period.
We might see renewed interest for utilities among investors, as these stocks have fallen more than 5%–6% after a previously fresh high. At the same time, US utilities could still be among investors’ preferred choices due to their attractive dividend yields.
Currently, these utilities are trading at a dividend yield of 4%, while the SPDR S&P 500 Index has a yield of 1.9%. Xcel Energy offers a yield of around 3.3%.
Total return is a more appropriate approach to evaluating utilities’ performance as it takes stock appreciation as well as dividends paid into consideration. Xcel Energy’s total returns over the past year stand at ~5%, compared with XLU’s 2%.
By comparison, Duke Energy (DUK), the largest regulated utility by market capitalization in the country, has returned 1.3% in the past year, while Southern Company (SO) has seen total returns of -7.3%.
You can read more about what’s happening with Southern Company in Market Realist’s Power Plant Woes Continue to Bite Southern Company. Continue to the next part for a look at Xcel’s valuation.