Utility Stocks for Retirement Investors: Vanguard Utilities ETF (VPU)
Dividend Yield: 3.1%
When it comes to buying utility stocks via broad indexed exchange-traded funds, the Utilities SPDR ETF (NYSEARCA:XLU) often gets the nod. There’s nothing wrong with the XLU — it features plenty of liquidity and dividends. But retirement investors can do better. And that better choice is the Vanguard Utilities ETF (NYSEARCA:VPU).
For starters, VPU offers broader coverage to utility stocks in the U.S. and includes large-, mid- and small-cap firms. That wide-sweeping approach bumps its total number of holding to 75 — roughly triple what the XLU holds. That addition of small- and mid-cap utilities is vital, as it allows VPU to profit from some of the “growthier” names in the sleepy sector. But remember, these are still utilities, and stable cash flows are still the name of the name.
The addition of that growth has allowed VPU to return an average of 7.1% over the last ten years. That bests the large-cap only XLU which returned about 6.9% annually. That may not seem like much, but it’s enough compounded over time to mean some serious moola.
VPU also beats the XLU on another metric — expenses. As a Vanguard fund, VPU features a rock-bottom expense ratio of 0.1%. The XLU clocks in at 0.14%.
In the end, when it comes to utility stocks, VPU is the best ETF choice.