Deep Dive: Utility stocks have beaten the S&P 500 in two months of turbulence and in the long run

The SP 500 utilities sector has been the best performer during the market decline that began in October. Don’t roll your eyes.

We know it may not be a surprise, as utility companies offer investors a haven in times of turbulence. But what may interest you is how much better this stodgy sector’s performance has been over long periods.

From the end of September, the SP 500 Index

SPX, +0.45%

 has declined 8%, including reinvested dividends, while the SP 500 utilities sector returned a positive 3.3%. Here’s a chart showing how well the 12 sectors of the SP 500 Index have fared over various periods:

Total returns SP 500 sector Sept. 28 through Nov. 26 2018 3 years 5 years 10 years 15 years 20 years Utilities 3.3% 6.1% 42% 71% 175% 338% 264% Consumer Staples 1.3% -2.1% 20% 46% 205% 281% 270% Real Estate 1.2% 2.9% 20% 63% 302% 268% N/A Financials -3.8% -3.7% 42% 67% 220% 67% 111% Health Care -4.8% 11.0% 33% 78% 342% 316% 307% Materials -7.1% -9.6% 25% 34% 204% 212% 281% Communications Services -9.5% -8.9% 14% 18% 119% 181% 29% Industrials -10.3% -6.0% 32% 51% 272% 253% 295% Consumer Discretionary -12.2% 6.0% 33% 72% 504% 328% 374% Information Technology -13.0% 4.9% 62% 123% 477% 334% 241% Energy -14.2% -7.8% 4% -14% 50% 239% 310% SP 500 Index -8.0% 1.8% 36% 64% 273% 244% 229% Dow Jones Industrial Average

DJIA, +0.69%

-6.5% 1.7% 49% 73% 266% 267% 323% Source: FactSet

The SP 500 utilities sector has been the best during the post-September market turmoil and has ranked second for 2018 through Nov. 26. But if you look at the longer periods, the total returns exceed those of the entire SP 500 for all periods except for 10 years.

But that 10-year figure is a bit deceptive. You need to consider what occurred before this 10-year period began. The SP 500 was down 34% (including reinvested dividends) for two years through Nov. 26, 2008, while the utilities sector suffered a far milder 13% decline.

The 20-year chart shows that, for the most part, the utilities sector has had less “downside capture” than the index:



FactSet

The utilities sector has been an excellent long-term performer.

There’s no question that over the past five years, the information-technology sector, driven by the market-cap-weighted performance of the FAANG companies (Facebook

FB, -0.63%

Apple

AAPL, +1.11%

Amazon

AMZN, +2.38%

Netflix

NFLX, +1.23%

 and Alphabet

GOOG, +0.36%

), has been the place to be. But the FAANG stocks have all fared even worse than the SP 500 since the end of September, despite the companies’ fast growth.

The 15-year and 20-year returns give evidence to the importance of the utilities sector: People and companies need those services in what is a critical industry protected by regulators. Utilities also reward investors with steady dividend payouts.

Investing in utility stocks

Concentrating on individual stocks can be a risky endeavor. Shares of PGE Corp.

PCG, -0.74%

the owner of Pacific Gas and Electric Co., are down 47% for 2018. Investors have worried that the company may be held liable for the California wildfires. Then again, some investors have looked at the decline as an opportunity.

Regardless of how the PGE saga plays out, there’s no question that a safer way for investors to gain exposure to the utilities sector is through an exchange traded fund, such as the Utilities Select Sector SPDR ETF

XLU, -0.30%

the Vanguard Utilities ETF

VPU, -0.28%

 or the iShares U.S. Utilities ETF

IDU, -0.26%

 

The sector

Here are all 29 stocks included in the SP 500 utilities sector, ranked by how well they have performed over the past five years:

Company Ticker Total return – 5 years Total return – 10 years Total return – 15 years Total return – 2018 through Nov. 26 Dividend yield American Water Works Co.

AWK, +0.16%

146% 506% N/A 3% 1.97% NiSource Inc

NI, -0.44%

139% 723% 486% 4% 3.02% NextEra Energy Inc.

NEE, -0.35%

139% 405% 803% 16% 2.51% CMS Energy Corp.

CMS, -0.51%

124% 633% 842% 11% 2.81% Ameren Corp.

AEE, -0.60%

124% 211% 216% 18% 2.80% Evergy Inc.

EVRG, -0.21%

123% 362% 469% 15% 3.19% Xcel Energy Inc.

XEL, -0.53%

116% 313% 470% 9% 2.97% DTE Energy Co.

DTE, -0.36%

106% 385% 496% 9% 3.24% Alliant Energy Corp

LNT, -0.31%

103% 322% 545% 7% 3.03% WEC Energy Group Inc

WEC, -0.79%

102% 361% 584% 10% 3.13% Exelon Corp.

EXC, -0.32%

102% 26% 160% 19% 3.05% Pinnacle West Capital Corp.

PNW, -0.68%

100% 362% 342% 8% 3.33% Public Service Enterprise Group Inc.

PEG, +0.06%

97% 168% 376% 7% 3.37% American Electric Power Co.

AEP, -0.47%

92% 280% 411% 7% 3.53% Eversource Energy

ES, -0.47%

91% 306% 463% 8% 3.02% Entergy Corp.

ETR, -0.87%

74% 62% 195% 10% 4.24% Consolidated Edison Inc.

ED, -0.42%

72% 203% 288% -5% 3.66% NRG Energy Inc.

NRG, +0.62%

59% 91% N/A 38% 0.31% Duke Energy Corp.

DUK, -0.63%

53% 209% 462% 8% 4.27% CenterPoint Energy Inc.

CNP, -0.45%

47% 251% 455% 2% 3.99% Sempra Energy

SRE, +0.24%

46% 239% 520% 7% 3.20% Southern Co.

SO, -0.08%

42% 104% 215% 0% 5.26% FirstEnergy Corp.

FE, -0.50%

42% 6% 111% 28% 4.03% Edison International

EIX, +0.49%

38% 127% 310% -12% 4.48% PPL Corp.

PPL, -0.24%

37% 61% 207% 4% 5.34% Dominion Energy Inc

D, -0.85%

36% 204% 341% -5% 4.51% AES Corp.

AES, +0.99%

26% 145% 112% 48% 3.38% Scana Corp.

SCG, -1.09%

20% 112% 162% 20% 1.06% PGE Corp.

PCG, -0.74%

-28% -6% 59% -44% 0.00% Source: FactSet

You can click on the tickers for more about each company, including news, profiles, charts, ratings and financials.

Don’t miss: These stocks are in bear territory, but analysts expect them to roar back

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Philip van Doorn covers various investment and industry topics. He has previously worked as a senior analyst at TheStreet.com. He also has experience in community banking and as a credit analyst at the Federal Home Loan Bank of New York.

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