Exchange-traded funds offer a convenient way to invest in sectors or niches that interest you. If you'd like to add some utility stocks to your portfolio, but don't have the time or expertise to hand-pick a few, the Vanguard Utilities Index ETF (NYSEMKT:VPU) could save you a lot of trouble. Instead of trying to figure out which companies will perform best, you can use this ETF to invest in lots of them simultaneously.
ETFs often sport lower expense ratios than their mutual fund cousins. The Vanguard ETF's expense ratio -- its annual fee -- is an ultra-low 0.14%. It recently yielded more than 3.5%, too.
This ETF has roughly matched the world market over the past five years, and underperformed it over the past three. As with most investments, of course, we can't expect outstanding performances in every quarter or year. Investors with conviction need to wait for their holdings to deliver.
While some industries see their fortunes rise and fall along with overall economic conditions, such as automakers or large-appliance makers, other industries, such as utilities, are more "defensive." Their offerings remain in demand no matter what the economy is doing. Better still, many utility companies pay substantial dividends.
More than a handful of utility companies had strong performances over the past year. NextEra Energy (NYSE:NEE), for example, jumped 24%. It's the nation's leader in renewable energies, and has been expanding and diversifying. It has updated its nuclear facilities, and thereby boosted its output, and has been investing in wind power, too. It's also working on a natural-gas pipeline in Florida. On the negative side, its debt load has been growing, and its revenue shrinking a bit in recent years.
NiSource (NYSE:NI), meanwhile, a holding company focused on gas and electricity, gained 21%, and yields 3.4%. The company's recent earnings report featured earnings up 6%, and increases in capital investments (to record levels), in part to modernize infrastructure. In Indiana, for example, it's spending $1 billion-plus over seven years, updating its electricity infrastructure. In recent years, NiSource's revenue has been shrinking, but its earnings growing.
Other companies didn't do quite as well over the last year, but could see their fortunes change in the coming years. British-American utility PP&L (NYSE:PPL) advanced 9%, and yields 4.8%. It recently reported strong gains (with EPS up nearly 50%), and upped its forecast, too. Revenue was up 35% over year-ago levels, though earnings from operations dropped 4% (but were still better than analysts had expected). Its three regulated business segments are dong particularly well. The company gets significant revenue and income from operations in the U.K., and bulls like that geographic diversification. Its recent foray into smart grids has boosted reliability.
Exelon (NYSE:EXC) shed 11%, and has also been saving itself and its customers money via smart grids. The leader in nuclear energy slashed its dividend by 41% a few months ago, though it's still yielding 4.1%. The company has been hurt by the relatively high cost of nuclear energy in an environment of very low gas prices, but it's positioning itself for growth, and is involved in other energy-generation businesses, too, such as solar and wind power. Its second quarter featured revenue that topped expectations, but earnings that fell a bit shy of them. Increased attention to climate change, and renewed interest in energy independence for America, can boost the fortunes of nuclear energy providers, but they're still vulnerable to uranium price moves.
The big picture
Demand for energy and utilities isn't going away anytime soon. A well-chosen ETF can grant you instant diversification across any industry or group of companies -- and make investing in and profiting from it that much easier.
Longtime Fool contributor Selena Maranjian, whom you can follow on Twitter, holds no position in any stocks mentioned. The Motley Fool recommends Exelon. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.