ETFdb Logo
ETFdb Logo
  • ETF Database
  • Channels
    • Themes
      • Active ETF
      • Artificial Intelligence
      • Beyond Basic Beta
      • China Insights
      • Climate Insights
      • Core Strategies
      • Crypto
      • Direct Indexing
      • Disruptive Technology
      • Energy Infrastructure
      • ETF Building Blocks
      • ETF Investing
      • ETF Education
      • ETF Strategist
      • Financial Literacy
      • Fixed Income
      • Free Cash Flow
      • Innovative ETFs
      • Institutional Income Strategies
      • Leveraged & Inverse
      • Managed Futures
      • Market Insights
      • Modern Alpha
      • Multifactor
      • Responsible Investing
      • Retirement Income
      • Tax Efficient Income
    • Asset Class
      • Equity
        • U.S. Equity
        • Int'l Developed
        • Emerging Market Equities
      • Alternatives
        • Commodities
        • Gold/Silver/Critical Minerals
        • Currency
        • Volatility
      • Fixed Income
        • Investment Grade Corporates
        • US Treasuries & TIPS
        • High Yield Corporates
        • Int'l Fixed Income
    • ETF Ecosystem
    • ETFs in Canada
  • Tools
    • ETF Screener
    • ETF Country Exposure Tool
    • ETF Sector Tracker Tool
    • ETF Database Categories
    • Head-To-Head ETF Comparison Tool
    • ETF Stock Exposure Tool
    • ETF Issuer Fund Flows
    • Indexes
    • Mutual Fund To ETF Converter
  • Research
    • ETF Education
    • Equity Investing
    • Dividend ETFs
    • Leveraged ETFs
    • Inverse ETFs
    • Index Education
    • Index Insights
    • Top ETF Sectors
    • Top ETF Issuers
    • Top ETF Industries
  • Webcasts
  • Themes
    • AI ETFs
    • Blockchain ETFs
    • See all Thematic Investing ETF themes
    • ESG Investing
    • Marijuana ETFs
  • Multimedia
    • ETF 360 Video Series
    • ETF of the Week Podcast
    • ETF Prime Podcast
    • Video
  • Company
    • About VettaFi
    • Get VettaFi’ed
  • PRO
    • Pro Content
    • Pro Tools
    • Advanced
    • FAQ
    • Pricing
    • Free Sign Up
    • Login
  1. Beyond Basic Beta Channel
  2. Energy, Utilities ETFs Present Unique Yield Situation
Beyond Basic Beta Channel
Share

Energy, Utilities ETFs Present Unique Yield Situation

Aaron NeuwirthAug 27, 2019
2019-08-27

The Utilities Select Sector SPDR (XLU A), the largest utilities sector ETF, and rival utilities ETFs are often embraced by income investors due to above-average yields. Indeed, XLU currently has a dividend yield of 3.07%, which is well above what investors will find on 10-year Treasuries or the S&P 500.

While XLU’s dividend yield is certainly attractive in a world of low yields, its yield is below the 3.35% offered by the Energy Select Sector SPDR (XLE A), the largest equity-based energy ETF. XLE sporting a higher yield than XLU has happened before, four years ago to be exact, but it doesn’t happen often.

“This isn’t the first time the oil-heavy S&P 500 Energy index has offered a higher dividend yield than utilities (that was in August 2015),” reports Bloomberg. “But we’ve now had almost four months of this situation, by far the longest run, and the spread has widened. After almost three decades of utilities offering roughly 1 to 3 percentage points of extra yield compared to their oilier energy brethren, the script seems to have flipped.”

The utilities sector is one of this year’s best-performing groups, underscoring the notion that many investors will embrace utilities stocks and ETFs during favorable interest rate environments. The Federal Reserve recently obliged by lowering interest and another rate cut is possible before the end of this year.

XLU Vs. XLE ETF

At a time when some sectors are being slammed due to the re-emergence of trade tensions between the U.S. and China, utilities stocks hold some allure for investors because the sector generates nearly all of its revenue on a domestic basis. S&P 500 utilities companies, on average, depend on the U.S. for 95% of their revenue. Conversely, many XLE components are export-heavy companies.

“Utilities, meanwhile, continue to enjoy reasonably steady earnings growth,” according to Bloomberg. “While U.S. electricity demand has flatlined, demand doesn’t drive earnings for regulated utilities; investment in old grids (including for natural gas) does, and that has kept on going. In other words, a utility with ever-expanding capital expenditures rewards investors regardless of demand for electrons. The same cannot be said for oil and gas spending”

Related: Energy ETFs Could be Ready to Turn For The Better

Slowing demand and the emergence of alternative energy are among the factors weighing on traditional energy firms, meaning they need to compel investors to stick with their stocks with higher dividends.

“The upshot is that money has moved into utilities, attracted by the dividends, yes, but also the promise of growth,” reports Bloomberg. “With their own growth narrative having ebbed, oil and gas producers must pay investors to hold their stocks.”

This article originally appeared on ETFTrends.com.


Content continues below advertisement

Loading Articles...
Our Sites
  • VettaFi
  • Advisor Perspectives
  • ETF Trends
Tools
  • ETF Screener
  • Mutual Fund to ETF Converter
  • Head-To-Head ETF Comparison
  • ETF Country Exposure Tool
  • ETF Stock Exposure Tool
  • ETF Database Pro
More Tools
  • Financial Advisor & RIA Center
Explore ETFs
  • ETF News
  • ETF Category Reports
  • Premium Articles
  • Alphabetical Listing of ETFs
  • Browse ETFs by ETF Database Category
  • Browse ETFs by Index
  • Browse ETFs by Issuer
  • Compare ETFs
Information
  • Contact Us
  • Terms of Use and Privacy Policy
  • © 2023 VettaFi LLC. All rights reserved.

Advertisement

Is Your Portfolio Positioned With Enough Global Exposure?

ETF Education Channel

How to Allocate Commodities in Portfolios

Tom LydonApr 26, 2022
2022-04-26

A long-running debate in asset allocation circles is how much of a portfolio an investor should...

Core Strategies Channel

Why ETFs Experience Limit Up/Down Protections

Karrie GordonMay 13, 2022
2022-05-13

In a digital age where information moves in milliseconds and millions of participants can transact...

}
X