Top Utility Stocks Powering Through Volatility

Key Points

• During recent volatility, the utility sector has held up better than the broader market, maintaining technical strength above key moving averages.
• Investors might be drawn to utilities for their reliable dividends and recent outperformance, safe-haven appeal, and role in the clean energy transition.
• The Utilities Select Sector SPDR Fund (XLU) and top-performing stocks like Duke Energy (DUK) and Southern Company (SO) might offer unique opportunities amid economic uncertainty.

As U.S. equities have pulled back sharply year-to-date (YTD), the benchmark S&P 500 ETF NYSEARCA: SPY has fallen nearly 8% from its 52-week highs. However, specific sectors have held up better than others during this market turmoil.

One such sector is Utilities. While it outperformed the broader market for much of last year, it has declined just over 5% from its 52-week highs as of Friday’s close. From a technical perspective, it remains in a consolidation phase above a rising 100-day simple moving average (SMA) and other shorter-term SMAs, suggesting that bulls are still in control.

If the market stabilizes and stages a rebound, could the Utilities Select Sector SPDR Fund NYSEARCA: XLU and the broader utilities sector be primed for a breakout? Let’s look closer at why investors might want to consider gaining exposure to utilities.

What Is the Utilities Sector?

The utilities sector consists of companies that provide essential services, including electricity, natural gas, water, and sewage systems. These companies generate, transmit, and distribute these resources, making them a stable, defensive investment. Due to their necessity in daily life and predictable revenue streams, utilities tend to perform well even during economic downturns.

The sector’s recent relative strength stems from economic uncertainty and market volatility. Investors often turn to utilities for their reliable dividends and traditional safe-haven appeal. Additionally, the global transition to clean energy, such as wind, solar, and electrification, has boosted the sector as utilities play a key role in infrastructure upgrades. 

Rising geopolitical tensions and energy cost fluctuations have further emphasized the importance of domestic reliability. Another factor driving demand is the rapid rise of artificial intelligence (AI). AI-driven technologies require energy-intensive data centers, significantly increasing electricity demand. This trend pressures utilities to expand and innovate to meet growing energy needs.

How Can Investors Gain Exposure?

Exchange-traded funds (ETFs) offer a diversified approach for investors seeking exposure to the utility sector without selecting individual stocks.

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One of the most popular ETFs is the Utilities Select Sector SPDR Fund NYSEARCA: XLU. 

XLU tracks the price and yield performance of the S&P 500’s Utilities Select Sector, which includes electric utilities, multi-utilities, independent power producers, and gas utilities.

The fund follows a passive investment strategy designed to mirror the performance of its underlying index.

XLU focuses almost entirely on U.S. companies, with 99.9% of its assets allocated domestically. Electric utilities account for 56% within its subindustry exposure, while multi-utilities make up 27%.

The ETF holds an aggregate Moderate Buy rating across 361 analyst ratings covering 31 companies.

It offers an attractive 2.84% dividend yield, with an annual dividend of $2.24 per share.

Favorable Technical Positioning of the Sector

Unlike the S&P 500 and tech-heavy Nasdaq ETF NASDAQ: QQQ, which are trading below their 200-day SMA, XLU has managed to consolidate and maintain its position above this key level.

This signals buyers remain in control, and the ETF is still in an uptrend on a higher timeframe.

If XLU maintains its position above the 200-day SMA, the $80 breakout level could be tested in the coming weeks or months.

A successful move above this resistance zone may confirm a higher-timeframe breakout and signal the start of another upward leg for the sector.

2 Top-Performing Utilities Stocks

Here are two of the sector's best-performing names this year for investors who prefer to gain exposure to individual utility stocks rather than ETFs.

Duke Energy NYSE: DUK is the third-largest holding in XLU, with a 7.7% weighting.

The stock has surged 10.5% year-to-date, significantly outperforming the sector and the broader market.

The company, a significant electric power and natural gas provider in the U.S., has a 3.5% dividend yield, a price-to-earnings (P/E) ratio of 20.8, and a Moderate Buy analyst rating.

Southern Company NYSE: SO is XLU’s second-largest holding, with an 8.3% weighting.

It is a leading gas and electric utility provider in the southern U.S. Like Duke Energy, Southern Company has significantly outperformed the overall market and sector year-to-date, acting as a defensive play for investors. 

The stock has climbed over 8% YTD compared to the sector's decline.

It has a 3.25% dividend yield, a market capitalization of just under $100 billion, and a Hold rating among analysts.