When most investors think about utility stocks, they think about the safety and income characteristics that have long defined the sector. And while they still provide those benefits, another upside has come to the fore of late.
Regulated electric, gas, and water utility operations are the foundation of the sector. Utilities act almost like monopolies, with little to no competition. They serve a basic need, so there’s a certain baseline of demand that keeps the stocks stable. But they typically may raise their rates only a little bit each year, so they rarely provide much in the way of growth. Utilities often pay out significant dividends instead as a way to entice would-be shareholders.
However, over the past few years, a new driver—artificial intelligence, and the power-hungry operations needed to power the technology—has added an exciting new element to utilities that wasn’t there before.
Read on as I explore a few of the best utility ETFs to buy. Each fund is built a little different from one another, but those differences influence the level of growth, safety, and dividends they produce.
Editor’s Note: The tabular data presented in this article is up-to-date as of Oct. 13, 2025.
Disclaimer: This article does not constitute individualized investment advice. Securities, funds, and/or other investments appear for your consideration and not as personalized investment recommendations. Act at your own discretion.
Why Do Investors Buy Utility Stocks?
Utility stocks are often lumped together with consumer staples and health care stocks. That’s because all three sectors deliver basic goods and/or services that people simply can’t go without—thus, even if the economy goes into the toilet, people might cut back spending in other areas, but they’ll do everything they can to keep from cutting back on prescriptions, toilet paper, and the electric bill.
Edward Jones Investments breaks down the buy case in a research paper:
“Utilities tend to pay a relatively high percentage of their earnings to shareholders in the form of dividends. In many cases, utility dividends grow slowly over time. This growing stream of income can help investors reduce the impact of inflation.
“Additionally, utilities display defensive characteristics since most customers view their services as essential. For that reason, we believe that traditional regulated utilities are among the companies least affected by changes in the health of the economy.”
The Investment Case for Utilities Is Changing
Utility stocks still largely provide those defensive properties, but over the past few years, evolutions to the space have given the sector more growth spark than usual.
For one, the sector has been transitioning from fossil fuels to clean energy, which for years gave utility companies the added bonuses of additional political and regulatory support. Of course, this strength is quickly vanishing under the new presidential administration.
But taking its place is utilities’ importance amid the rise of artificial intelligence (AI).
“Artificial intelligence has now touched nearly every aspect of life. And, as it turns out, powering AI applications requires a lot of energy,” James Dorment, Co-Head of Fundamental Research and Portfolio Manager at Voya Investment Management, said in a 2024 research paper. “U.S. data centers currently consume as much electricity as all households in New York and Florida combined. With the rapid adoption of AI and development of AI-powered data, this consumption is projected to nearly triple by 2035, matching the combined usage of New York, Florida, Texas, and California households. …
“As technology advances and new AI chips are developed, power consumption is expected to rise further. This burgeoning demand for electricity is transforming the power sector and propelling utilities toward significant growth.”
To be clear: Utilities’ newfound tether to AI is a double-edged sword. If the reality of artificial intelligence doesn’t live up to expectations—if the technology falls flat on growth estimates, and thus the necessary infrastructure around it isn’t as robust—this fresh tailwind could start blowing back against the sector.
The Best Utility ETFs
If you’re investing in utility stocks solely for this growth potential, it might behoove you to invest in one or two stocks that are uniquely positioned to take advantage. Many utility companies found in your average ETF might have marginal to no upside from AI’s expansion.
However, if you’re interested in the sector’s defensive properties, whether in part or in whole, utility ETFs are likely the way to go. Utility ETFs are well-diversified across the sector, providing the exposure you want without the risk of a single utility-company failure blowing up your whole portfolio.
The following are three of the best utility ETFs you can find.
1. Utilities Select Sector SPDR Fund
–Inception: Dec. 19, 1998
–Assets under management: $21.9 billion
–Dividend yield: 2.7%
–Expense ratio: 0.08%, or 80¢ per year on every $1,000 invested
The Utilities Select Sector SPDR Fund (XLU) is the oldest, biggest, and—thanks to a 2025 fee reduction—cheapest utility ETF on the market.
The XLU is as straightforward as it gets. This index fund holds all of the utility stocks in the S&P 500. That’s it. Like the S&P 500 itself, XLU is market cap-weighted, so the larger the company, the greater the percentage of assets invested in that company. So, for instance, $145 billion NextEra Energy (NEE) is the top holding at more than 12% of assets, while $7 billion AES Corp. (AES) is the smallest holding at just 0.7%.
To prevent hyper-concentration in one or a few stocks, XLP’s index also has a couple of “caps” that ensure after each quarterly rebalancing: a.) No single stock can make up more than 25% of the index, and b.) the total weight of companies with individual weights greater than 4.8% can’t exceed 50% of the total index weight.
Related: The 10 Best-Rated Dividend Aristocrats Right Now
The XLU is hardly perfect. By virtue of excluding any utility companies that trade outside of the S&P 500, XLU has one of the smallest holdings lists among indexed utility ETFs, at just 31 companies right now. That, combined with the market cap weighting system, leads to sizable concentrations. Just four stocks—NextEra, Southern Co. (SO), Constellation Energy (CEG), and Duke Energy (DUK)—account for a little more than a third of the fund’s assets. It also means you’re lacking exposure to potentially higher-growth small-cap utility companies.
But high concentrations in larger companies generally result in more stable performance. Also, this is the utility sector—there’s far less differentiation among these companies, which operate in just a narrow handful of businesses, than there are among the components of most other sectors.
The Utilities Select Sector SPDR Fund has long been one of the best utility ETFs to buy, but for different reasons. XLU started acquiring assets by being the only game in town, and over time was the most attractive player because it was the biggest game in town. However, on Jan. 31, State Street Investment Management reduced the net expense ratio on its Select Sector funds—so now, XLU is also the cheapest game in town, at an annual expense ratio of just 0.08%.
Want to learn more about XLU? Check out the State Street Global Advisors provider site.
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2. Invesco S&P 500 Equal Weight Utilities ETF
–Inception: Nov. 1, 2006
–Assets under management: $506.6 million
–Dividend yield: 2.4%
–Expense ratio: 0.40%, or $4.00 per year on every $1,000 invested
Investors have thrown several billion dollars at a number of other utility ETFs that follow indexes that, while built a little differently from XLU, ultimately provide pretty similar exposure and almost identical returns. There’s nothing wrong with them, per se—they’re just slight variants on XLU that cost a hair more.
If you want truly different exposure to the utility space, you might instead want to consider the Invesco S&P 500 Equal Weight Utilities ETF (RSPU), which holds … OK, this is a little embarrassing, but it holds the exact same 30 or so stocks that XLU does.
But how RSPU holds those stocks makes an enormous difference!
Related: 7 Low- and Minimum-Volatility ETFs for Peace of Mind
Invesco’s utility ETF tracks the S&P 500 Equal Weight Utilities Plus Index, and the key words there are “equal weight.” Unlike XLU and other copycat funds, where bigger stocks have more pull, RSPU gives the same weight to each stock every time the ETF rebalances, which is quarterly.
Depending on how each stock performs, their weights might change throughout the quarter. But right now, they’re trading pretty closely together—NextErra, Constellation Energy (CEG), Eversource Energy (ES) each account for more than 3% of assets … as do all the other top-10 holdings, for that matter. And every three months, they’ll all be brought back to the exact same weight, and the dance will begin anew.
Equal weighting typically reduces concentration in a handful of stocks. To wit: While top-10 holdings usually account for 60% or more of the assets of many market cap-weighted utility index funds, they only account for about a third of RSPU’s assets.
But more importantly, equal weighting also tends to reduce emphasis on the larger companies in an index while giving smaller companies more say in performance. For instance: Even though XLU and RSPU hold the same exact companies, the former’s average weighted market cap (which accounts for the assets allocated to each stock) is about $55 billion, while the latter’s is just $35 billion.
This higher reliance on small caps has led to a slightly lower yield than other utility index funds, but much better performance. On a total-return basis (price plus dividends), RSPU has beaten XLU and the category average over every meaningful time frame—and by well more than enough to justify its relatively elevated fees.
Want to learn more about RSPU? Check out the Invesco provider site.
Related: 10 Best ETFs to Beat Back a Bear Market
3. Virtus Reaves Utilities ETF
–Inception: Sept. 23, 2015
–Assets under management: $1.2 billion
–Dividend yield: 1.2%
–Expense ratio: 0.49%, or $4.90 per year on every $1,000 invested
The vast majority of the market’s utility ETFs are index-based. However, if you prefer to put skilled human managers on the case, you can do so via the Virtus Reaves Utilities ETF (UTES).
And even if you prefer index funds, you might want to consider Virtus’ actively managed product.
Managers John Bartlett, Joseph Rhame III, and Rodney Rebello have built a portfolio with many of the same names you’ll see in an index ETF—Vistra, Constellation, and Xcel Energy (XEL) among them, but with the occasional outlier, such as small-cap Talen Energy (TLN). The primary difference is just how tight the portfolio is: a mere 18 stocks at the moment.
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There’s no weighting system here. The portfolio managers allocate assets at their own discretion, and Virtus’ trio is more than comfortable with high concentrations. VST, TLN, and CEG, for instance, collectively account for almost 40% of assets, and nearly three-quarters of the fund’s assets are wrapped up in the top 10 holdings. Its average weighted market cap is a hair smaller than RSPU’s, too.
That has translated into even less income—UTES currently yields just a little more than the S&P 500—but stellar returns nonetheless. Its one-, three-, five-, and 10-year trailing returns are downright spectacular, topping XLU, RSPU, and the category average by a considerable margin.
Most of that outperformance has come more recently as the fund’s concentrated bets have really paid off. Just understand that this upside potential also comes with higher risk than your average index fund should any of UTES’ largest holdings fall out of favor.
Want to learn more about UTES? Check out the Virtus Investment Partners provider site.
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Related: 10 Best Monthly Dividend Stocks for Frequent, Regular Income
The vast majority of American dividend stocks pay regular, reliable payouts—and they do so at a more frequent clip (quarterly) than dividend stocks in most other countries (typically every six months or year).
Still, if you’ve ever thought to yourself, “it’d sure be nice to collect these dividends more often,” you don’t have to look far. While they’re not terribly common, American exchanges boast dozens of monthly dividend stocks.
Related: 5 Best Vanguard Dividend Funds for 2025 [Low-Cost Income]
What’s better than a smart, sound dividend income strategy? How about a smart, sound dividend income strategy with very little money coming out of your pocket?
If that sounds good to you, you need look no farther than low-cost pioneer Vanguard, which offers up a number of payout-oriented products. Find out what you need to know in our list of five top-notch Vanguard dividend funds.
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