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XLU: Discussing Utilities’ Concerning Valuation

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Valuation

Investors seem to have overlooked utility stocks’ (XLU) (VPU) record-high valuations recently. Their premium dividend yield continued to charm investors. Like their premium valuations, US utility stocks have kept their premium spot intact as the highest-yielding sector among broader equities.

Currently, US utilities are trading at an EV-to-EBITDA valuation of 11x, while their historical average is ~8x–9x. NextEra Energy (NEE) and Dominion Energy’s (D) valuation multiples are near 13x and 15x, respectively.

The Utilities Select Sector SPDR ETF (XLU) trades at a dividend yield of 3.5%—significantly higher than the broader markets’ yield of 2%. XLU’s yield is also higher than the ten-year Treasury yield of 2.4%.

US utilities’ expected earnings growth indicates that they might continue to offer handsome dividend growth going forward. Their premium yield will likely persist and outwit peer sectors.

Read XLU: Why Do Utilities Pay High Dividends? to learn more.

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