Of the 11 sectors, utilities are the worst-performing one year-to-date. The utility sector is up only +3.7%. On the other hand, the Energy sector is up +47%, and nine out of 11 sectors have double-digit returns YTD. For context, year-to-date, the S&P 500 (SPY) is up +15.8%, the NASDAQ-100 (QQQ) is up 16.8%, and the Dow Jones Industrial Average (DJI) is up +10.6%. There is always opportunity in an underperforming sector, and it may be time to add to utilities after a poor 2020 and continued underperformance in 2021.

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Utility Underperformance

Utilities performed poorly in 2020, too, due to the significant negative impact of the COVID-19 pandemic on electric power and natural gas demand. In addition, demand was lower because of local government restrictions, social distancing, and commercial and industrial business closures. Residential market demand was up but often not enough to offset lower demand from commercial and industrial customers.

Demand has increased in 2021, but it has been inconsistent as consumer fears keep them outside, and some local governments reimposed restrictions. Utility stock prices recovered from their lows in 2020 but have trended down again in the past month. The sector has been down (-6.2%) in the past month. More recently, interest rates have started to rise. In general, rising interest rates put downward pressure on utility stock prices since some investors view them as bond alternatives. For example, in the last 30 days, the 10-year US Treasuries rate has gone up from ~1.3% to over ~1.5%. The yield is still below most utilities, but this is over a 10% rise in a short period and trending higher.

Some utilities are down year-to-date with declines of nearly (-10%) in the past month. There are three utilities that I view as long-term buys for income and dividend growth. These utilities are South Jersey Industries (SJI), Pinnacle West (PNW), and Atmos (ATO)…