Utilities stocks offer some of the most stable and reliable investment opportunities on the market. But government regulations may limit revenue and growth potential. Here's what you need to know about investing in utilities stocks in Australia.
What are utilities stocks?
Utilities stocks belong to companies within the utilities sector of the stock market. According to the Global Industry Classification Standard, there are 11 stock market sectors, each defined by a specific industry or type of business. Stock sectors help investors gauge or invest in select pieces of the market.
The utilities sector is comprised of companies responsible for basic public services and amenities, including water, gas and electricity. As a result of the public-facing nature of the sector, it’s one of the most heavily regulated, contributing to stable dividends and decreased volatility.
What subcategories does it include?
Companies within the utilities sector can be publicly or privately owned and break down into the following subindustries:
Electric. Companies that create or provide electricity for commercial and residential homes belong to this subindustry.
Gas. Unlike companies that produce gas from the energy sector, gas utilities distribute manufactured and natural gas to businesses and households.
Water. Companies are responsible for buying and distributing water, including water treatment facilities.
Multiutility. These companies provide more than one utility, combining gas, water, electricity or other services in their public offerings.
Renewable energy. Independent power producers and renewable electricity providers fall into this category, including solar, wind, geothermal and hydropower energy providers.
How to invest in the utilities sector
While it’s not possible to directly invest in a stock sector, you can invest in what the sector tracks by purchasing stocks and exchange-traded funds (ETFs).
Individual stocks let Australian investors target the specific companies they want to back. Stocks can offer high-yield returns but tend to be more volatile than ETFs.
ETFs track the entire sector and offer more comprehensive portfolio exposure. But they come with expense ratios — typically in the 0.03% to 2.5% range.
To purchase stocks or ETFs in Australia, you’ll need a brokerage account. Here’s a quick breakdown of the investment process:
Pick a platform. Explore your platform options to find the broker best suited to your investment goals.
Open an account. Complete applications for web-based brokerages online with just a few pieces of personal information.
Fund your account. Transfer money to your new brokerage account to begin trading.
Select your securities. Use your platform’s research tools or rely on third-party research to find stocks and funds by sector.
Watch your investments. Log into your brokerage account to monitor your investments.
What stocks are in the utilities sector?
Company summary
Meridian Energy Limited engages in the generation, trading, and retailing of electricity to residential, business, and industrial customers in New Zealand, Australia, and the United Kingdom. It generates electricity through 7 hydro stations that has a capacity of 2,353 MW; 5 wind farms that has a capacity of 416 MW; and grid-scale solar array, as well as offers solar installation services. It sells electricity under the Meridian Energy and Powershop brands. The company was formerly known as Hydro Energy Limited. Meridian Energy Limited was incorporated in 1998 and is based in Wellington, New Zealand.
APA Group engages in energy infrastructure business in Australia. The company operates through three segments: Energy Infrastructure, Asset Management, and Energy Investments. It operates natural gas pipelines, electricity interconnectors, gas fired power generation stations, and solar farms and wind farms, as well as gas storage, processing, and compression facilities. The company has interests in approximately 15,000 kilometers of gas transmission pipelines; approximately 29,500 kilometers of gas mains and pipelines; and 1.5 million gas consumer connections. It also provides commercial, operating, and asset maintenance services to its energy investments and third parties; and invests in energy infrastructure. The company was incorporated in 2007 and is headquartered in Sydney, Australia.
Mercury NZ Limited, together with its subsidiaries, engages in the production, trading, and sale of electricity and related activities in New Zealand. The company operates through Generation/Wholesale, Retail, and Other segments. It operates 9 hydro generation stations on the Waikato River; 6 wind plants; and 5 geothermal generation stations in the central North Island. The company sells electricity to residential, commercial, industrial, and spot market customers under the GLOBUG, Trustpower, and Mercury brands. It also provides piped natural gas; broadband and telecommunication; mobile services; and other products. The company was formerly known as Mighty River Power Limited and changed its name to Mercury NZ Limited in July 2016. The company was incorporated in 1998 and is based in Auckland, New Zealand.
Historical performance
Company summary
AGL Energy Limited supplies energy and other essential services to residential, small and large businesses, and wholesale customers in Australia. It operates through three segments: Customer Markets, Integrated Energy, and Investments. The company engages in retailing of electricity, gas, broadband, mobile, voice, solar, and energy products and services; and operates power generation portfolio and other assets including coal, gas and renewable generation, natural gas storage and production, and development projects. It also offers renewable energy schemes; and controls dispatch of owned and contracted generation assets, gas offtake agreements, and associated portfolio of energy hedging products. In addition, the company offers coal and gas-fired generation; and renewable energy sources, such as wind, hydro and solar, batteries and other firming technology; and gas production and storage assets. AGL Energy Limited was founded in 1837 and is based in Sydney, Australia.
AusNet Services Ltd owns and operates an electricity transmission network in Australia. It operates through Electricity Distribution, Gas Distribution, Electricity Transmission, and Growth & Future Networks segments. The Electricity Distribution segment carries electricity from the high voltage transmission network to end users, including metering. The Gas Distribution segment carries natural gas to commercial and residential end users, including metering in central and western Victoria. The Electricity Transmission segment owns and manages an electricity transmission network, including transmission lines and towers, which carry electricity at high voltages from power generators to electricity distributors in Victoria. The Growth & Future Networks segment provides contracted infrastructure asset and energy services, as well as a range of asset and utility services to support the management of electricity, gas, and water networks. The company operates through an electricity transmission network of approximately 6,852 kilometers of high voltage transmission powerlines, 61 terminal stations, and 13,161 transmission towers; electricity distribution network of approximately 768,460 customers, 77 zone substations, 412,402 distribution poles, and approximately 53,990 kilometer of distribution lines. It also operates a gas distribution network of 752,882 customers and 12,384 kilometers of underground gas pipelines. The company was formerly known as SP AusNet Ltd. and changed its name to AusNet Services Ltd in August 2014. AusNet Services Ltd was incorporated in 2014 and is headquartered in Southbank, Australia. As of February 4, 2022, AusNet Services Ltd was taken private.
Historical performance
Stock information
Market capitalization: $9919595520
P/E ratio: 38.6567
PEG ratio: 0
Dividend yield: 0.0367%
Company summary
Contact Energy Limited generates and sells electricity and natural gas in New Zealand. It operates through two segments, Wholesale and Retail. The Wholesale segment sells electricity to the wholesale electricity market, and commercial and industrial customers. The Retail segment delivers electricity, natural gas, broadband, and other products and services to mass market customers. The company offers electricity, natural gas, and bottled gas generated through its 11 hydro, geothermal, and thermal power stations. It serves approximately 580,000 customers. The company was incorporated in 1995 and is based in Wellington, New Zealand.
Historical performance
Company summary
Infratil Limited is an infrastructure investment firm specializing in digital Infrastructure, renewables, and social infrastructure. They prefer to invest in renewable electricity, data centers, telecommunications networks healthcare, and airports. It invests around the world. Infratil Limited was incorporated in 1994 and is based in Wellington, New Zealand.
Historical performance
Company summary
Spark Infrastructure Group is a publicly owned investment manager. The firm invests in the regulated utility infrastructure markets across the globe. It aims for a balanced portfolio. The firm's earnings are supported by growth in underlying assets and through sustainable investments in high value, unregulated opportunities. It invests in growth opportunities in distribution and transmission networks, renewables and adjacent sectors, investing in infrastructure for the future. Spark Infrastructure Group is based in Sydney, Australia.
Historical performance
Company summary
Genesis Energy Limited generates, trades in, and sells electricity to residential and business customers in New Zealand. It generates electricity from thermal, hydro, solar, and wind sources. The company operates through Retail, Wholesale, and Kupe segments. The Retail segment supplies energy, including electricity, gas, and LPG to end-users, as well as provides related services. The Wholesale segment engages in the supply of electricity to the wholesale electricity market; supply of gas and LPG to wholesale and retail customers; and purchase and sale of derivatives to fix the price of electricity. The Kupe segment is involved in the exploration, development, and production of gas, oil, and LPG; and supply of gas and LPG to the wholesale segment, as well as light oil. The company's generation asset portfolio comprise the Huntly power station with a generation capacity of 953 MW; Tongariro Power Scheme that comprises three power stations with a generation capacity of 361.8MW; Waikaremoana Power Scheme, which includes three power stations with a generation capacity of 138 MW; Tekapo Power Scheme with a generation capacity of 190 MW; and Hau Nui wind farm with 15 wind turbines. The company was formerly known as Genesis Power Limited and changed its name to Genesis Energy Limited in September 2013. Genesis Energy Limited was incorporated in 1998 and is headquartered in Auckland, New Zealand.
Historical performance
Company summary
Tilt Renewables Limited, together with its subsidiaries, engages in the development, ownership, and operation of electricity generation facilities. The company operates through Australian Generation and New Zealand Generation segments. It generates electricity from renewable energy sources, such as wind and solar energy. It also provides financial services; and trades in electricity and associated products from renewable energy sources. As of March 31, 2021, the company operated 170MW of wind generation assets in Australia and 329MW of wind generation assets in New Zealand. It has strategic partnership with Genesis Energy. The company was incorporated in 2002 is based in Auckland, New Zealand. Tilt Renewables Limited is a subsidiary of Infratil 2018 Limited. As of August 3, 2021, Tilt Renewables Limited operates as a subsidiary of Powering Australian Renewables.
Historical performance
Company summary
New Energy Solar Limited acquires, owns and manages large scale solar generation facilities. The firm may also invest in other renewable energy assets including wind, geothermal, hydro-electricity, hybrid solutions and owns and manages large scale solar generation facilities. New Energy Solar Limited was established in 2015 and is based in Sydney, Australia.
Historical performance
Company summary
amaysim Australia Limited, together with its subsidiaries, operates as a mobile virtual network operator in Australia. It operates through two segments, Mobile and Energy. The company provides 2G, 3G, and 4G mobile services, including voice and video calls, text messages, data, and multimedia messaging, as well as related information, entertainment, and connectivity services under the amaysim and Vaya brand names. It also supplies electricity and gas. As of August 31, 2020, the company had 830,000 mobile subscribers and 211,000 energy subscribers. amaysim Australia Limited was founded in 2010 and is headquartered in Sydney, Australia.
Historical performance
What ETFs track the utilities sector?
No ASX-listed utility ETF at the moment.
How is the utilities sector performing?
The graph below tracks the Utilities Select Sector SPDR Fund ETF (XLU). Tracking ETF performance is one way to gauge how a sector is performing.
Why invest in the utilities sector?
One of the major draws to the utilities sector is stability. Companies in this sector typically pay steady dividends investors can rely on. The utilities sector is one of the least volatile on the market and is especially well-positioned to weather recession. Gas, water and electric companies tend to do well during an economic downturn, so stocks in this sector are a prudent choice for Australian investors executing a long-term buy and hold strategy.
What unique risks does the utilities sector face?
Due to the government regulations that hold significant sway over this sector, it’s difficult for utilities providers to increase their revenue through raised rates. And due to the sizable infrastructure required to operate, utilities providers are often forced to carry a lot of debt, making them especially vulnerable to interest rate fluctuations.
Profits from investing in the utilities sector can act as a reliable source of income, but Australian investors seeking opportunities with greater growth potential would do better to explore other sectors, like technology stocks.
Compare stock trading platforms
In order to purchase stocks or ETFs, you'll need a brokerage account in Australia. Compare your options using the table below to find the right fit.
Important: The standard brokerage fee displayed is the trade cost for new customers to purchase $1,000 of either Australian or US shares. Where a platform charges different fees for both US and Australian shares we show the lower of the two. Where both CHESS sponsored and custodian shares are offered, we display the cheapest option.
Bottom line
The utilities sector houses companies responsible for basic services we need and rely on, including gas, water and electricity. Reliance on these staple services makes companies in this sector a safe and stable investment, but heavy regulations limit their revenue potential.
Review your brokerage account options across multiple trading platforms for the account best suited to your investment goals.
Frequently asked questions
Third-party research providers like Bloomberg and Yahoo Finance offer sector-specific analytics you can use to stay up-to-date on sector price fluctuations. Most trading platforms in Australia also offer stock screeners you can use to filter available stocks by sector.
An independent power producer is a company that specializes in the generation and distribution of electric power to public utilities or consumers.
Disclaimer: This information should not be interpreted as an endorsement of futures, stocks, ETFs, CFDs, options or any specific provider, service or offering. It should not be relied upon as investment advice or construed as providing recommendations of any kind. Futures, stocks, ETFs and options trading involves substantial risk of loss and therefore are not appropriate for all investors. Trading CFDs and forex on leverage comes with a higher risk of losing money rapidly. Past performance is not an indication of future results. Consider your own circumstances, and obtain your own advice, before making any trades. Read the Product Disclosure Statement (PDS) and Target Market Determination (TMD) for the product on the provider's website.
Shannon Terrell is a writer for Finder who studied communications and English literature at the University of Toronto. On any given day, you can find her researching everything from equine financing and business loans to student debt refinancing and how to start a trust. She loves hot coffee, the smell of fresh books and discovering new ways to save her pennies.
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