Utilities are generally considered a "recession-resistant" sector because utility companies see little variation in their earnings in any economic condition, suggests Rida Morwa, editor of High Dividend Opportunities.
Utility companies typically enjoy mini-monopolies and their product is one that people can't live without. While their pricing power is somewhat limited by government regulation, historically, utilities have been able to navigate the bureaucracy. They might not always get the price hikes they want, but in the words of the Rolling Stones, you get what you need.
For this reason, utilities are generally considered "defensive". But let's be clear, the market is not a rational place and share prices for utilities will fall in a market sell-off just like anything else. There is no "magic bullet" that is going to protect you from downdrafts in the market when the market is selling off everything.
Meanwhile, Reaves Utility Income Fund (UTG) is a closed-end fund (CEF) that invests in a diversified portfolio of utility and infrastructure companies. Like the Utilities Select Sector SPDR Fund (XLU), UTG has seen its fair share of price swings. But you know what hasn't bounced up and down? The dividend, which now pays $0.19/month.
UTG has been an extraordinarily well-run CEF, that has been tested by large sell-offs, and then COVID, and has come out the other side stronger than ever. Investors in the market are fearful. They are selling first and asking questions later. For income investors like us, this is an opportunity to pick up income investments at a discount.
Yes, utilities will continue to see selling pressure when everything else is falling. However, their earnings will remain solid and the companies will continue producing a high level of income. Let other panic over changes in prices while you sit back and collect a growing stream of income.