Utilities ETFs Could Be Vulnerable To Dividend Cuts

It is an easy economic scenario to understand. Utilities, arguably more than any other sector, are adversely affected by rising interest rates. A spike in rates means higher borrowing costs for a capital intensive business and, on a historical basis, high interest rate environments have prompted some utilities to pare dividends. Concerns over rising interest rates explain in large part why the Utilities Select Sector SPDR (XLU) and other former darling utilities ETFs have been punished by investors. In the past month, XLU has tumbled about 8 percent, an exceptionally large, volatile move for the sector SPDR fund with the lowest beta to the S&P 500. If one analyst is right, more pain could be ahead for some utilities stocks on the dividend front. In a note out Friday, Bernstein analyst Hugh Wynne identified eight utilities that are least likely to sustain their dividends.... Read more