Utility stocks may not be a glamorous investment, but they can provide steady returns, especially when the markets are turbulent.
History has shown that utility stocks tend to outperform when the economy is going through a downturn, so they can be a good way to protect your portfolio against a recession. But they can also underperform when the economy is growing.
The best utility stocks for you will depend on the level of risk you’re prepared to take on and what else you’re invested in. It’s important to weigh up the pros and cons of any investment before you buy.
To create a list of the best utilities stocks, we’ve used data from the S&P Global 1200 Utilities sector index, which many utility funds use as a benchmark.
| Stock | Icon | 1 year performance (to Jan. ’24) | 5 year performance (to Jan. ’24) | Link to invest |
|---|---|---|---|---|
| Constellation Energy (CEG) |  | 38.30% | 156.36% | Invest with XTBCapital at risk |
| Enel SpA (ENLAY) |  | 21.90% | 28.46% | Invest with XTBCapital at risk |
| Iberdrola (IBE) |  | 8.41% | 73.52% | Invest with XTBCapital at risk |
| National Grid (NGG) |  | 4.04% | 33.64% | Invest with XTBCapital at risk |
| Southern (SO) |  | 1.89% | 53.58% | Invest with XTBCapital at risk |
| Sempra (SRE) |  | -0.37% | +33.19% | Invest with XTBCapital at risk |
| Duke Energy (DUK) |  | -4.62% | 16.40% | Invest with XTBCapital at risk |
| American Electric Power (AEP) |  | -11.08% | 12.02% | Invest with XTBCapital at risk |
| Exelon (EXC) |  | -15.80% | 10.29% | Invest with XTBCapital at risk |
| NextEra Energy (NEE) |  | -25.21% | 40.68% | Invest with XTBCapital at risk |
Utility companies supply homes and businesses with electricity, gas and water. Some companies are also responsible for generating electricity, while others maintain the infrastructure, such as the sewage system or the power lines.
One way of investing in utilities companies is by buying shares in them — or by investing in a fund that buys utility stocks on your behalf. To be classed as a utilities stock, the company must fall within the GICS “utilities” sector.
Utilities stocks tend to fit into the categories listed below, though some companies might be involved in all 3:
Utility stocks tend to be a reliable investment, particularly when times are tough as they can outperform when other sectors struggle.
Investors often adopt a long-term buy-and-hold strategy for utilities stocks — plus, they often pay dividends, so they can be a good option for income seekers. Even the best dividend stocks don’t mean a guaranteed income, but they can provide a relatively reliable stream of regular payments.
Here’s a rundown of the main advantages of investing in utilities stocks:
As with all investments, there are risks to consider when thinking of buying utilities stocks:
"Outside of researching individual stocks to buy, ETFs are a great way to get passive exposure to utilities. With the iShares S&P 500 Utilities Sector ETF (IUUS), you can use it as an investment to track US utility stocks. Or if you want to stay closer to home, the iShares STOXX Europe 600 Utilities ETF (DE) invests in European utilities.
If you don’t want a passive approach, you might want to check out a fund or investment trust like the Ecofin Global Utilities & Infrastructure Trust (EGL), for example."
To invest in utility stocks, you don’t have to buy shares directly and you could opt for a managed investment fund or a passive exchange-traded fund (ETF) instead. Funds are collective investment schemes where investors’ money is pooled together and the fund manager buys and sells stocks on their behalf.
Some investment funds will allocate a proportion of investor money to this sector (the fund factsheet should outline the percentage that is invested in each).
But you can also find funds that invest purely in utilities stocks — some of these are managed by a fund manager who makes active investment decisions. But you can also invest in ETFs or index funds that track the performance of utilities stocks based on industry benchmarks. Passive funds like ETFs tend to be cheaper compared to actively managed ones.
All investing should be regarded as longer term. The value of your investments can go up and down, and you may get back less than you invest. Past performance is no guarantee of future results. If you’re not sure which investments are right for you, please seek out a financial adviser. Capital at risk.
Utilities stocks can be an important ingredient in a diversified investment portfolio, providing a buffer against turbulent markets — just don’t expect mind-blowing returns.
Make sure you’ve got a mix of companies across this sector, ranging from energy to water, in case regulatory changes have a detrimental impact on a whole group of businesses.
Water stocks can be rewarding, but there are risks involved that could impact your profits. Find out how to invest in water companies.
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