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Deep Dive: You may be surprised which stock-market sector has been the hottest in the past year

Utility stocks have not only soared during the past 12 months, they have also measured up well over the long haul. Read More...

It may not surprise you that utility stocks have fared well as interest rates have declined, but a closer look at the sector may genuinely shock you.

As discussed when we reviewed the best-performing stocks of 2019, the utilities sector of the S&P 500 SPX, +0.70%  was the benchmark index’s top performer in the third quarter. But a closer look at 12-month total returns for the sectors, the full index and the Dow Jones Industrial Average DJIA, +0.38% is enlightening, and so are the longer-term figures.

Here’s how the sectors and the broad indexes have performed during 2019, for 12 months and for longer periods:

S&P 500 Sector Total return – 2019 through Oct. 1 Total return – 12 months Total return – 3 years Total return – 5 years Total return – 10 years Total return – 15 years Total return – 20 years
Information Technology 30.3% 7.1% 82% 133% 395% 461% 187%
Real Estate 28.4% 24.5% 33% 71% 310% 284% N/A
Utilities 25.0% 27.1% 46% 82% 230% 351% 357%
Consumer Staples 22.9% 16.6% 25% 56% 221% 325% 427%
Consumer Discretionary 21.5% 1.8% 54% 94% 417% 371% 383%
Communications Services 20.6% 4.8% 9% 29% 149% 166% 25%
Industrials 19.6% -1.9% 35% 58% 253% 234% 290%
Financials 17.1% 1.4% 51% 63% 185% 62% 138%
Materials 14.4% -0.7% 27% 30% 146% 191% 289%
Health Care 4.6% -5.0% 31% 54% 280% 305% 339%
Energy 3.6% -22.2% -10% -23% 39% 116% 222%
 
S&P 500 Index 19.1% 2.6% 44% 67% 252% 255% 237%
Dow Jones Industrial Average 16.0% 2.1% 56% 79% 259% 281% 316%
 Source: FactSet

(All returns in this article include reinvested dividends.)

Look at the bottom of the table. The 12-month returns have been paltry. This year’s euphoria is really only a recovery from the doldrums of the fourth quarter of 2018, when the S&P 500 was down 13.5% and the Dow was down 12%. If the period had closed on Christmas Eve, the S&P 500 would have been down 19% for the fourth quarter, and the Dow down 18%.

So the 12-month figures are more meaningful. It is understandable that the utilities and real estate sectors — considered dividend-income investments — have fared well as the yield on 10-year U.S. Treasury notes TMUBMUSD10Y, -4.23%  has declined to 1.59% from 3.05%.

Here’s how the utilities sector’s returns have ranked against the others for all the periods:

Total return period Utilities sector rank
2019 through Oct. 1 3
12 months 1
3 years 4
5 years 3
10 years 6
15 years 3
20 years 3
Data source: FactSet

This “boring” sector has measured up well — it’s worst ranking is sixth for 10 years, a period during which big tech companies have performed very well, taking the market-capitalization-weighted S&P 500 along with it. But the utilities sector has been ranked in the top half for all other periods and third for 15 and 20 years.

And it is possible, even likely, that interest rates will head even lower. The Federal Reserve is under pressure to lower short-term interest rates further as economic reports show a slowdown in growth, and the central bank may take other steps to push interest rates lower, as central banks in other developed economies have done.

For example, Germany’s 10-year government bond TMBMKDE-10Y, -7.94% now yields minus 0.55%.

Exchange-traded funds that track the S&P 500 utilities sector include the Utilities Select Sector SPDR ETF XLU, +0.02%, which does so on a market-cap-weighted basis with low annual expenses of 0.13% of assets. The Invesco S&P 500 Equal Weight Utilities ETF RYU, +0.08%  has an annual expense ratio of 0.40%.

Two examples of utility ETFs that take a broader approach with very low expenses are the Fidelity MSCI Utilities Index FUTY, +0.00%, which has an expense ratio of 0.08%, and the Vanguard Utilities ETF VPU, +0.05%, with expenses of 0.10%.

A list of the entire sector

Here are the 28 stocks that comprise the S&P 500 utilities sector, sorted by dividend yield:

Company Ticker City State Dividend yield
PPL Corp. PPL, -0.39% Allentown Pennsylvania 5.27%
Dominion Energy Inc. D, -0.76% Richmond Virginia 4.52%
Southern Co. SO, +0.23% Atlanta Georgia 4.01%
Duke Energy Corp. DUK, +0.20% Charlotte North Carolina 3.93%
CenterPoint Energy Inc. CNP, -0.80% Houston Texas 3.85%
AES Corp. AES, +0.70% Arlington Virginia 3.36%
Edison International EIX, -1.03% Rosemead California 3.32%
FirstEnergy Corp. FE, +0.92% Akron Ohio 3.17%
Consolidated Edison Inc. ED, -0.10% New York New York 3.15%
Entergy Corp. ETR, +0.00% New Orleans Louisiana 3.10%
Public Service Enterprise Group Inc. PEG, +0.24% Newark New Jersey 3.05%
Pinnacle West Capital Corp. PNW, -0.12% Phoenix Arizona 3.03%
Exelon Corp. EXC, +0.23% Chicago Illinois 3.02%
American Electric Power Co. Inc. AEP, +0.23% Columbus Ohio 2.87%
Evergy Inc. EVRG, -0.12% Kansas City Missouri 2.87%
DTE Energy Co. DTE, -0.69% Detroit Michigan 2.84%
NiSource Inc. NI, -0.32% Merrillville Indiana 2.69%
Sempra Energy SRE, +0.81% San Diego California 2.65%
Alliant Energy Corp LNT, -0.11% Madison Wisconsin 2.63%
Eversource Energy ES, -0.02% Springfield Massachusetts 2.51%
Xcel Energy Inc. XEL, -0.07% Minneapolis Minnesota 2.49%
WEC Energy Group Inc WEC, +0.33% Milwaukee Wisconsin 2.48%
Ameren Corp. AEE, -0.43% St. Louis Missouri 2.39%
CMS Energy Corp. CMS, +0.41% Jackson Michigan 2.39%
NextEra Energy Inc. NEE, +0.28% Juno Beach Florida 2.15%
Atmos Energy Corp. ATO, +0.04% Dallas Texas 1.86%
American Water Works Co. AWK, +0.50% Camden New Jersey 1.61%
NRG Energy Inc. NRG, +0.97% Princeton New Jersey 0.31%
Source: FactSet

Keeping the list in the same order, here are 12-month sales and earnings-per-share growth figures for the group through the most recently reported fiscal quarter-ends.

Company Ticker 12-month revenue change 12-month sales-per-share change EPS – past 12 months EPS year earlier 12-month period Change in EPS
PPL Corp. PPL, -0.39% -1% -5% $2.43 $2.00 22%
Dominion Energy Inc. D, -0.76% 13% 1% $1.46 $4.75 -69%
Southern Co. SO, +0.23% -8% -11% $4.23 $2.32 83%
Duke Energy Corp. DUK, +0.20% 3% 0% $4.53 $3.95 15%
CenterPoint Energy Inc. CNP, -0.80% 15% 2% $1.13 $3.58 -68%
AES Corp. AES, +0.70% 0% -9% $0.59 $0.59 0%
Edison International EIX, -1.03% 5% 5% -$0.77 $1.27 -160%
FirstEnergy Corp. FE, +0.92% 1% -23% $2.07 -$4.50 -146%
Consolidated Edison Inc. ED, -0.10% 2% 0% $4.21 $5.07 -17%
Entergy Corp. ETR, +0.00% -3% -6% $5.10 $1.62 215%
Public Service Enterprise Group Inc. PEG, +0.24% 6% 7% $2.88 $4.29 -33%
Pinnacle West Capital Corp. PNW, -0.12% 1% 0% $4.47 $4.16 7%
Exelon Corp. EXC, +0.23% 1% 1% $2.34 $3.94 -41%
American Electric Power Co. Inc. AEP, +0.23% -1% -2% $3.99 $3.90 2%
Evergy Inc. EVRG, -0.12% 81% 7% $2.36 $2.32 2%
DTE Energy Co. DTE, -0.69% 2% 1% $6.05 $6.39 -5%
NiSource Inc. NI, -0.32% 4% -5% $0.30 $0.77 -61%
Sempra Energy SRE, +0.81% 8% -8% $6.88 -$2.54 -371%
Alliant Energy Corp LNT, -0.11% 2% 0% $2.16 $2.09 3%
Eversource Energy ES, -0.02% 7% 7% $2.71 $3.18 -15%
Xcel Energy Inc. XEL, -0.07% 2% 1% $2.45 $2.43 1%
WEC Energy Group Inc WEC, +0.33% 0% 0% $3.46 $4.00 -14%
Ameren Corp. AEE, -0.43% -3% -4% $3.22 $2.52 28%
CMS Energy Corp. CMS, +0.41% 3% 2% $2.06 $1.94 6%
NextEra Energy Inc. NEE, +0.28% 2% 0% $6.95 $17.30 -60%
Atmos Energy Corp. ATO, +0.04% -7% -12% $4.23 $5.46 -23%
American Water Works Co. AWK, +0.50% 4% 3% $3.21 $2.62 23%
NRG Energy Inc. NRG, +0.97% 0% -6% $1.81 -$3.09 -159%
Source: FactSet

We have included sales per share, as well as raw revenue growth figures because the per-share numbers will be lower if any dilution has taken place through the net issuance of new shares to fund acquisitions or for other purposes. The per-share numbers will be higher if the share count has declined because of share repurchases. Evergy EVRG, -0.12%  is an example — the company (formerly Monarch Energy) acquired Great Plains Energy and Westar Energy in June 2018.

The high number of utility companies showing extreme variance in earnings per share for the most recent 12-month period shows that this is an industry in flux, with mergers, unit sales and more complicated deals being announced almost continually. So if you are looking to invest in individual utility stocks, you better do your homework.

Here’s a summary of sell-side analysts’ opinions of the group:

Company Ticker Share ‘buy’ ratings Share neutral ratings Share ‘sell’ ratings Closing price – Oct. 1 Consensus price target Implied 12-month upside potential
PPL Corp. PPL, -0.39% 21% 72% 7% $31.31 $32.17 3%
Dominion Energy Inc. D, -0.76% 33% 67% 0% $81.22 $81.31 0%
Southern Co. SO, +0.23% 11% 58% 32% $61.88 $57.96 -6%
Duke Energy Corp. DUK, +0.20% 22% 61% 17% $96.19 $95.13 -1%
CenterPoint Energy Inc. CNP, -0.80% 65% 35% 0% $29.89 $32.13 8%
AES Corp. AES, +0.70% 40% 60% 0% $16.24 $18.44 14%
Edison International EIX, -1.03% 53% 47% 0% $73.90 $79.07 7%
FirstEnergy Corp. FE, +0.92% 67% 28% 5% $47.89 $48.22 1%
Consolidated Edison Inc. ED, -0.10% 12% 47% 41% $94.10 $89.40 -5%
Entergy Corp. ETR, +0.00%   63% 31% 6% $117.32 $115.07 -2%
Public Service Enterprise Group Inc. PEG, +0.24% 53% 41% 6% $61.70 $64.00 4%
Pinnacle West Capital Corp. PNW, -0.12% 20% 60% 20% $97.31 $97.50 0%
Exelon Corp. EXC, +0.23% 69% 26% 5% $47.98 $52.97 10%
American Electric Power Co. Inc. AEP, +0.23% 47% 48% 5% $93.22 $93.78 1%
Evergy Inc. EVRG, -0.12% 60% 20% 20% $66.28 $65.89 -1%
DTE Energy Co. DTE, -0.69% 37% 44% 19% $133.19 $134.61 1%
NiSource Inc. NI, -0.32% 36% 57% 7% $29.73 $30.04 1%
Sempra Energy SRE, +0.81% 57% 36% 7% $146.08 $151.08 3%
Alliant Energy Corp LNT, -0.11% 22% 67% 11% $53.89 $52.38 -3%
Eversource Energy ES, -0.02% 62% 19% 19% $85.36 $81.67 -4%
Xcel Energy Inc. XEL, -0.07% 29% 57% 14% $64.95 $63.00 -3%
WEC Energy Group Inc WEC, +0.33% 8% 54% 38% $95.19 $88.73 -7%
Ameren Corp. AEE, -0.43% 33% 59% 8% $79.66 $80.00 0%
CMS Energy Corp. CMS, +0.41% 33% 61% 6% $64.15 $62.33 -3%
NextEra Energy Inc. NEE, +0.28% 82% 12% 6% $232.03 $225.80 -3%
Atmos Energy Corp. ATO, +0.04% 60% 20% 20% $112.98 $115.38 2%
American Water Works Co. AWK, +0.50% 46% 39% 15% $123.86 $121.42 -2%
NRG Energy Inc. NRG, +0.97% 82% 9% 9% $39.14 $46.50 19%
Source: FactSet

Analysts’ ratings are based on one-year price targets. That’s a short period for long-term investors, especially those focused on slow-growing companies that pay out high (or relatively high) dividends. The lack of enthusiasm for the group is typical and flies in the face of the sector’s strong long-term performance.

Don’t miss: Few stocks pass this rigorous test, but those that do may serve you well through market turmoil

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