The utility sector is a category of stocks for companies that provide basic services including water and sewage services, electrical power transmission, airports, dams, and natural gas delivery. Utilities earn a profit but are a public service and as a result, are heavily regulated.
Utilities typically offer investors stable and consistent dividends as well as less price volatility relative to the overall equity markets. Because utility stocks are considered stable and pay a consistent dividend, they tend to perform well when the economy is in a recession and be out of favor with the market during times of economic expansion.
There are many types of utilities for investors to consider. Large utility companies might offer multiple services such as electricity and natural gas. Other utilities might specialize in one service such as water. Some utilities use renewable energy including wind and solar to produce electricity. Investors can purchase regional utilities or invest in exchange-traded funds (ETFs) that contain a basket of many utility stocks throughout the U.S.