Utilities notably outperformed broader markets over the past 12 months. In this period, the Utilities Select Sector SDPR ETF (XLU), the representative of top utility stocks in the country, returned 21%, while the S&P 500 returned 2%. We have considered both dividends paid and a capital appreciation while calculating total returns.
Utility stocks, generally seen as bond proxies due to their higher dividend paying capabilities, have rallied significantly recently. Investors turned to safer utility stocks (IDU) (VPU) amid broader market uncertainty driven by geopolitical tensions.
It should be noted that utilities’ outperformance fades if we consider a longer period. In the last three-year period, total returns from broader utilities came in at 34%, while the S&P 500 returned 47%.
None of the other sectors among broader markets fared well recently. Technology stocks on an average returned 2.4%, while the Consumer Discretionary (XLY) returned 5% over the past 12 months.
Utilities are currently trading at a dividend yield of 3.2%, higher than broader markets and the benchmark Treasury yields. Along with dividend yields, dividend growth also matters a lot in driving investors’ returns in the long term. Let’s discuss utilities’ dividend growth next.