The public utilities sector includes stocks of companies that provide various services in the fields of electricity, water, natural gas, waterways, and sewage. The public utilities sector consists of companies that provide essential services such as natural gas, electricity, and water. Although most listed companies are private firms, they are considered part of the broader public service landscape. Because of this, the sector is heavily regulated, both at the state and federal levels.
How does the public utilities sector work?
The public utilities sector tracks the performance of companies within the public utilities industry. While most public utility companies are regulated government entities, some are unregulated and contractually guaranteed entities. As of September 2019, the public utilities sector has approximately 550,000 jobs. According to the U.S. Bureau of Labor Statistics, there are five main services provided by companies within this sector:
- Electric power
- Natural gas
- Steam supply
- Water supply
- Sewage removal
It is worth noting that renewable energy producers are also considered an independent entity within the public utilities industry. This includes companies that produce and distribute renewable energy sources such as wind, solar, hydroelectric, and geothermal energy.
What does this mean for individual investors?
Since public utilities are an essential part of modern life, the public utilities sector has a high demand. As a result, stocks in the public utilities sector are considered relatively stable investments. Additionally, the regulation of this industry and the lack of competition in most areas make the performance of many public utility companies more predictable, which is particularly beneficial when investing.
You can start investing in public utility companies through mutual funds or ETFs (such as the Vanguard Utilities ETF and the Fidelity MSCI Utilities ETF), or through the S&P 500 public utilities sector index fund, or by researching and investing in individual public utility companies.
It is important to understand your investment risks before choosing a strategy. For example, while investing in stocks often leads to higher returns, it carries greater risks than investing in mutual funds and index funds. Additionally, mutual funds and index funds also distribute dividends to investors throughout the year.
Public utilities stocks vs. energy sector stocks
The main difference between the public utilities sector and the energy sector is the companies that exist in each industry and the tasks they perform. The public utilities sector includes companies engaged in the production and distribution of utility services to customers, while the energy sector includes companies involved in exploring, managing, and producing resources such as water, oil, and electricity.
Frequently Asked Questions
Why does the public utilities sector perform well during economic downturns?
Public utilities help meet our daily needs – from lighting our homes to providing us with clean water. Because public utility companies provide vital services, these companies typically withstand economic downturns well. Even during times of economic disruption, people and businesses still need public utility services.
When does the public utilities sector thrive?
Most public utility companies thrive during recessions and times of economic instability. When interest rates are low (typically during or before recessions), these companies tend to perform better. That is why it is best to buy public utilities stocks when the economy is growing. However, the performance of public utilities stocks is generally stable overall.
What should I look for in a public utilities stock?
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Although your investment needs may vary, you will want to review the earnings of exchange-traded funds and index funds when comparing your options. When comparing stocks, focus on the company’s performance and profit before choosing a public utility company to invest in.
Source: https://www.thebalancemoney.com/what-is-the-utilities-sector-5192170
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