What happened

Shares of diversified utility AES Corporation (NYSE:AES) dropped 18.7% in March, according to data from S&P Global Market Intelligence. That was much worse than the 13% drop in the S&P 500 Index, and way more than the 11% decline seen by the average utility stock, as measured by Vanguard Utilities ETF.

The thing is, AES is not your average electric utility, and the differences are important today.

So what

When most people think of a utility, they envision a government-regulated company that produces electricity. It's a fairly boring business model that's very stable over time, assuming management doesn't do anything risky (such as over-leveraging the balance sheet).

The thing is, AES only gets about 30% of its revenue from its regulated utility business. The rest largely falls into the unregulated category. Sure, there are contracts involved, but with about 70% of the top line outside the regulated space, AES's business is inherently riskier than a utility that's mostly regulated.   

A man in a hard hat standing in front of electrical power equipment

Image source: Getty Images.

That's not the only difference here. The other thing most investors probably think of when they conjure up an image of a utility is a domestically focused company. Here, too, AES is very different, with roughly 60% of its revenue derived from outside of the United States. This is not the type of safe utility stock someone might recommend to a widow or an orphan (the historical Wall Street euphemisms for risk-averse investors).    

That said, AES has been doing some interesting things lately, such as expanding into renewable power. Global diversification isn't a bad thing, per se, even if it amplifies risk. Right now, though, as COVID-19 spreads across the globe, investors are increasingly looking to avoid risk. As one of the more aggressively positioned utility stocks, that's led to a deeper decline at AES than at peers. 

Now what

Conservative investors looking for shelter in a volatile market probably won't like AES. However, the current risk mentality on Wall Street might make the stock a little more interesting for more aggressive income investors. Its financial results have been solid, it has decent growth prospects over the long term, and the yield is near its highest levels over the past decade (even after bouncing back some from its March lows). You just need to go in knowing that AES is a more complex story than what you may think of when you hear the word "utility."