The Best Utility ETFUtility ETFs are a great way to diversity your portfolio since utility stocks have appealing yields and cushion investors during bear markets. Right now, there are nearly 20 utility focused ETFs. That is not a lot, but then again, there are not too many publically traded utilities either. Utility stocks and ETFs are good investments if you are looking for non-cyclical or defensive investments since people cannot eliminate their need for gas, electricity and water. This leads to consistent dividend yields. Investors gravitate to safer and more defensive stocks, such as regulated utilities, during down markets, and utilities tend to be just like this. The fact that utility ETFs charge less for their expense ratios than mutual funds make the case for using them stronger. How do you begin to sort through them to find the best one? Just like you do for any other ETF using the criteria I outlined
HERE.
When screening you won’t be looking for ETFs that invest in utility stocks that are posting large increases in earnings or revenue growth. You are usually searching for stability and financial strength. You want the company's earnings to remain steady during good times and bad. And you want to know with some certainty that the company can afford to continue paying its dividend. This means a low payout ratio (like less than 60%). There are some companies that have payout ratios above 100% because they pay out more in dividends than they earn. That's possible because depreciation, while charged against earnings, doesn't require the company to pay out cash; but a high payout ratio usually isn't sustainable for long. There has been a proliferation of ETFs within the last few years because it is a lucrative business. I tend to prefer simple, broad based indices when investing in ETFs. Therefore, there are only two Utility ETFs that I would consider buying if I wanted to quickly diversify my portfolio and gain utility stock exposure. Those ETFs are:
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