Investors like utility companies because they often pay an attractive dividend to investors annually. Many companies also increase their dividend every year. It is a great investment choice for investors seeking a reliable and stable income. Because of their ability to pay a stable and predictable dividend, these companies are often referred to as bond proxy stocks.

However, investors should keep in mind that shares of these bond proxy companies are often impacted by rising interest rates. Below is a chart that shows 10-year treasury yield (TNX) and Utilities Select Sector SPDR ETF (XLU) share price in the past year. As can be seen, they have a strong inverse correlation. This means that if the 10-year treasury yield rises too fast, Utility stocks tend to perform poorly. On the other hand, if the 10-year treasury yield declines, utility stocks tend to perform better.

For investors seeking to invest in utility stocks, it is important to pay attention to the treasury yield.