Aug 22, 2023 - Economy & Business

Chart: Utilities stocks are the worst place to be in 2023

Data: FactSet; Chart: Axios Visuals
Data: FactSet; Chart: Axios Visuals

Utilities are the worst-performing part of the stock market this year.

The big picture: Hawaiian Electric's recent share price collapse is a reminder of the potential risks utilities may face from changing climate conditions. But the sector's year-to-date slump stems largely from something more mundane — the rise in interest rates.

State of play: Unlike growth stocks, investors tend to own utilities to collect dividends.

  • Utilities are less attractive when "risk-free" investments, like money market mutual funds or Treasury bills, are paying some of the highest returns in decades.
  • After all, why would you own utilities stocks — the sector is expected to pay a dividend yield of 3.5% this year — when you could own a six-month Treasury bill that's basically risk-free and will pay you 5.5%?

Meanwhile, Hawaiian Electric's share price plunged 65% since Maui's catastrophic wildfire, due to potential litigation stemming from its equipment's role in the blaze.

  • And in 2019, California utility PG&E filed for bankruptcy after a series of costly, deadly fires were blamed on its usage of outdated equipment.

The bottom line: Even the sleepiest parts of the stock market, like utilities, are far from risk-free.

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