Investing in utilities stocks

This heavily regulated sector is fairly low risk — but growth is limited.

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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:

  1. Pick a platform. Explore your platform options to find the broker best suited to your investment goals.
  2. Open an account. Complete applications for web-based brokerages online with just a few pieces of personal information.
  3. Fund your account. Transfer money to your new brokerage account to begin trading.
  4. Select your securities. Use your platform’s research tools or rely on third-party research to find stocks and funds by sector.
  5. Watch your investments. Log into your brokerage account to monitor your investments.

What stocks are in the utilities sector?

What ETFs track the utilities sector?

Major utilities-tracking ETFs include:

  • Vanguard Utilities ETF (VPU)
  • S&P/ASX 200 Utilities (XUJ)

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.

Name Product Standard brokerage fee Inactivity fee Markets International
eToro Share Trading (US stocks)
US$0
US$10 per month if there’s been no login for 12 months
US shares, ETFs
Yes
Zero brokerage share trading on US stocks with trades as low as $50.
Join the world’s biggest social trading network when you trade stocks, commodities and currencies from the one account.
Superhero share trading
$5
No
ASX shares, ETFs
No
Pay zero brokerage on all Australian ETFs.
Trade ASX stocks with a flat $5 commission fee and a low minimum investment of just $100.
ThinkMarkets Share Trading
$8
No
ASX shares, ETFs
No
Limited offer: Get 5 free ASX trades when you open a new account with ThinkMarkets before June 30, 2021 (T&Cs apply).
Buy and sell CHESS sponsored ASX shares with $0 brokerage on your first 5 trades. Only $8 flat fee brokerage thereafter, plus enjoy free live stock price data on an easy to use mobile app.
Bell Direct Share Trading
$15
No
ASX shares, mFunds, ETFs
No
⭐ Finder Exclusive: Get 5 free stock trades and unlimited ETF trades until July 31, 2021 when you join Bell Direct.
Bell Direct offers a one-second placement guarantee on market-to-limit ASX orders or your trade is free, plus enjoy extensive free research reports from top financial experts.
IG Share Trading
Finder Award
IG Share Trading
$8
$50 per quarter if you make fewer than three trades in that period
ASX shares, Global shares
Yes
$0 brokerage for US and global shares plus get an active trader discount of $5 commission on Australian shares.
Enjoy some of the lowest brokerage fees on the market when trading Australian shares, international shares, plus get access to 24-hour customer support.
Saxo Capital Markets (Classic account)
$6.99
No
ASX shares, Global shares, Forex, CFDs, Margin trading, Options trading, ETFs
Yes
Acess 19,000+ stocks on 37 exchanges worldwide
Low fees for Australian and global share trading, no inactivity fees, low currency conversion fee and optimised for mobile.
CMC Markets Stockbroking
$11
No
ASX shares, Global shares, mFunds, ETFs
Yes
$0 brokerage on global shares including US, UK and Japan markets.
Trade up to 9,000 products, including shares, ETFs and managed funds, plus access up to 15 major global and Australian stock exchanges.
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Compare up to 4 providers

Important: Share trading can be financially risky and the value of your investment can go down as well as up. “Standard brokerage” fee is the cost to trade $1,000 or less of ASX-listed shares and ETFs without any qualifications or special eligibility. If ASX shares aren’t available, the fee shown is for US shares. 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.

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