Investing in utility stocks is a great way for investors to protect themselves from a downturn in the economy. Keeping the lights on and heat on is a necessity which ensures that consumers will stay on top of their bills and that utility providers will continue generating recurring revenue.
That's why the iShares U.S. Utilities ETF (NYSEArca-IDU) could be an ideal option for investors who want a dividend, stability, and a relatively low-risk investment overall.
Nearly all of the stock's holdings are in the utilities sector. The largest stock in the fund is NextEra Energy Inc (NYSE:NEE), which makes up 11.85% of the total holdings. The stocks in the fund are traded at reasonable multiples, averaging a price-to-earnings ratio of 24 and a price-to-book multiple of 2.3.
Year to date, the ETF has climbed more than 20% in value and over a five-year period those returns are up over 38%. In addition, the ETF also pays a modest dividend yield of 2.6% and it also charges a low expense ratio of just 0.42%.
Another important characteristic for risk-averse investors is that the fund has averaged a beta of just 0.24 over the past three years.
That indicates that investors won't see a lot of volatility in the ETF, which can be very important, especially during a downturn to help minimize the exposure an investor has to the market's wild swings.
Overall, the ETF is a sound investment option that can allow novice investors to hold a good mix of utility stocks that should be a safe bet to generate positive returns and dividend income for many years to come.
