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Exchange-traded funds offer a convenient way to invest in sectors or niches that interest you. If you expect the utilities industry to thrive over time as our planet's growing population and developing economies consume more energy, the iShares Dow Jones U.S. Utilities ETF (NYSE: IDU ) 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 iShares ETF's expense ratio -- its annual fee -- is a relatively low 0.47%. And it recently yielded 3.4%, too.
This ETF has performed rather well, beating the world market over the past three, five, and 10 years. 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.
With a low turnover rate of 6%, this fund isn't frantically and frequently rejiggering its holdings, as many funds do.
More than a handful of utilities had strong performances over the past year. Ameren (NYSE: AEE ) , for example, jumped 13% and recently yielded 4.9%. Founded in 1881, the company is a diversified energy producer, using coal, gas, nuclear, and hydroelectric generation. The company's dividend sports a 12% average annual growth rate over the past five years, but that may not be sustainable, given that it's paying out more than it's been earning lately, and it hasn't been growing its top line significantly in recent years.
Duke Energy (NYSE: DUK ) gained 12% and recently yielded 4.7%. Its earnings have been growing at a good clip in recent years, but revenue has been growing rather slowly. The company's investments in renewable energy are promising.
In part to pay for updated power plants, the company has filed for the first rate increase in 25 years at a North Carolina location. If approved, the 12% increase is expected to generate $387 million in additional annual revenue. Meanwhile, a Florida nuclear plant needs $3 billion or so in repairs, so the company is deciding whether to do the repairs or close the plant. Utilities are a capital-intensive business.
PPL (NYSE: PPL ) , recently yielding 4.9%, is up 9% over the past year, and has been growing at a faster clip than many peers, with double-digit average annual growth rates for revenue and earnings over the past three years. (These rates have been accelerating, too.) Its U.K. operations are doing particularly well, and the company has been focusing more on regulated generation, which tends to be less risky. Its capital spending has driven up its debt burden, though.
Other companies didn't do as well last year, but could see their fortunes change in the coming years. Exelon (NYSE: EXC ) , down 10%, is the nation's top nuclear-power utility, though it also has plenty of non-nuclear doings. Recently yielding 5.7%, its revenue growth has been slow and lumpy lately, with net losses instead of gains. The low price of natural gas has been making other power sources less attractive in comparison. And with Japan's recent disaster, nuclear power isn't as popular as it used to be, though more plants are likely to be built. Exelon and some peers are seeking U.S. permission to export technology and equipment.
The big picture
Demand for 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.
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