Investors will watch until the final minute of the trading day to see whether the Dow Jones Industrials (DJINDICES:^DJI) hits a record closing high. But one market measure they don't need to worry about is the Dow Jones Utility Average (DJINDICES:^DJU), which is more than 10% below its own record highs of December 2007.
A brief recent history of utilities
Since late 2007, utility stocks have basically followed a similar path to the Dow Industrials. Even though utilities are seen as defensive plays, they plunged precipitously during the financial crisis, but they rebounded strongly after hitting bottom in early 2009. Since then, the average has slowly made back ground, and in 2011 dividend-hungry investors got heavily involved in the sector, pushing prices higher. Fears of a utility bubble even emerged briefly, as dividend stocks have become so popular that many of them fetch much higher valuations than they normally do.
But over the past year, utilities have badly lagged the rest of the stock market, with a combination of factors contributing to their weak performance. Hurricane Sandy certainly didn't help matters, straining Dow Utility components Consolidated Edison (NYSE:ED) and FirstEnergy (NYSE:FE), which were hit especially hard by the storm.
Low natural-gas prices have led to a renaissance in the utility industry, with many power companies converting to natural-gas-fired plants. For some electric utilities, that's been a positive move, but Dow Utility component and nuclear specialist Exelon (NYSE:EXC) has struggled as the lower electricity prices resulting from cheap gas have hurt its margins. Since the Dow Utilities' record high, Exelon has been the worst performer, losing half its value.
Even though the Utilities Average isn't near a record high, one thing to remember about the Dow averages is that they don't incorporate dividends. When you consider the rich yields that utility stocks pay, most of them have done quite well for their investors in terms of total return. Even if the Dow Utilities don't set a record soon, they can still give shareholders the dependable income and slow growth they have offered in the past.
Fool contributor Dan Caplinger has no position in any stocks mentioned. You can follow him on Twitter @DanCaplinger. 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.