This article was originally published on ETFTrends.com.
The utilities sector is one of this year's best-performing groups, underscoring the notion that many investors will embrace utilities stocks and exchange traded funds during favorable interest rate environments. It is widely expected the Federal Reserve will not raise interest rates this year and some bond market participants are betting on a rate cut late this year.
“Yet for income investors, utilities’ dividends have rarely looked so attractive. U.S. utilities’ 3.4% average yield is 90 basis points above the 10-year U.S. Treasury yield as of late March, a reliable buy signal,” said Morningstar in a recent note. “Most utilities’ dividends are well-covered and set to grow more than 5% annually the next three to five years. We think some utilities’ dividend growth could top 10% for several years. Apart from a few special situations, we see no risk of dividend cuts across the sector.”
For investors that want some utilities exposure without the commitment of a dedicated ETF such as XLU, there are other fund to consider. Those ETFs include the ProShares S&P MidCap 400 Dividend Aristocrats ETF (CBOE:REGL) and the ProShares Russell 2000 Dividend Growers ETF (CBOE:SMDV) .
Ample Utilities Exposure
REGL, which recently turned four years old, follows the S&P MidCap 400 Dividend Aristocrats Index. That is the dividend aristocrats offshoot of the widely followed S&P MidCap 400 Index. REGL’s components, which currently number 52, are required to have minimum dividend increase streaks of 15 years.
REGL, which has 30-day SEC yield of 1.89%, allocates 13.43% of its weight to utilities stocks, making that sector the fund's third-largest sector weight.
SMDV, a dividend spin on the Russell 2000, the benchmark U.S. small-cap index, tracks the Russell 2000 Dividend Growth Index, which includes small-cap firms with dividend increase streaks of at least a decade.
That ETF has 30-day SEC yield of 2.28% and allocates 25.70% of its weight to utilities stocks, by far its largest sector weight.
“We also think there could be an exceptional buying opportunity if the sector makes a modest correction. U.S. utilities went into 2019 trading at fair value on average and have rallied 9% year to date. When utilities dipped below fair value in mid-2015 they went on to rally 30% during the next 12 months,” according to Morningstar.
For more on core investing strategies, please visit our Core ETF Channel .
Have you signed up for the ETF Trends Virtual Summit on Wednesday, April 17? It's complimentary for financial advisors (earn up to 5 CE Credits)! Register now to learn about inside the disruptive technology revolution. POPULAR ARTICLES AND RESOURCES FROM ETFTRENDS.COM
- SPY ETF Quote
- VOO ETF Quote
- QQQ ETF Quote
- VTI ETF Quote
- JNUG ETF Quote
- Top 34 Gold ETFs
- Top 34 Oil ETFs
- Top 57 Financials ETFs
- Using Merger Arbitrage as a Hedge Against Market Volatility
- A Better Way to Determine Risk Exposure for Growth ETF Investors
- Report Findings Highlight Fake Bitcoin Trading on Unregulated Exchanges
- How to Manage A Mature Bull Market With Macro-Themed ETF Strategies
- In the Know: Building a Low Cost, Defensive Portfolio