Utility Industry consists of the water, electric and gas utilities. For example, an electric utility provides the electricity to homes and other buildings. Also the industry includes companies that generate and sell energy to the utility companies, including those producing electricity out of the renewables (the oil and gas producers are not included into this industry).
The important feature of the industry is that utility companies are heavily regulated. This is due to the fact that usually they are granted the monopoly in the regions they operate. So, companies cannot easily increase the prices to clients in order to increase a revenue. Moreover, companies can be fully or partly public owned.
The industry is defensive in a nature as it serves the basic needs of consumers and businesses. It performs better than other industries during economic recessions and underperforms when an economy is growing.
Due to the climate warming issue, there is increasing pressure on utility companies to use an energy produced from the cleaner sources. So companies increasingly involve in the clean energy transition.
Utility companies are negatively affected by the rising interest rates as usually they have high level of debt. The reason for the high debt is that companies have expensive infrastructures, requiring regular upgrades and new asset purchases. So, if the interest rates start increasing from current historical lows, it could have a negative impact on the financial position and, consequently, on the stock price of a company.
Also natural disasters, like a hurricane and a wildfire can hit hard utility companies.
Despite those risks, utility companies are known for providing stable and attractive flow of dividends. The industry could be attractive to conservative investors, particularly to those mainly relying on dividend flow for living.
Sectors of the Industry
According to the Industry Classification Benchmark (ICB), Utility industry consists of the following sectors.
|Gas, Water & Multiutilities||Gas Distribution