Utility yields premium is dissipating

Inflation has started to erode the competitiveness of the utilities sector's dividends. For the first time in at least 30 years, utilities' inflation-adjusted dividend yield has turned negative.

While yields are still attractive at a median of 3.1% compared with the rest of the market, the sector’s yield premium is dissipating. Utility yields had as much as a 200-basis-point premium to the 10-year U.S. Treasury in August 2021. That has fallen to 29 basis points as of April 28, the smallest since November 2018.

Record-low Treasury yield gives S&P 500 utilities more appeal

Utility stocks have more to offer income-seeking investors now that the yield on 10-year Treasury notes has set a record low. The S&P 500 Utility Index’s dividend yield surpassed the Treasury yield by more than 200 basis points Tuesday, when the latter fell below 1% for the first time, according to data compiled by Bloomberg. The yield gap rose above the threshold Friday for the first time since June 2013, and then narrowed Monday as stocks rallied. Utility and 10-year yields diverged after coming within 8.5 basis points of each other in November 2018. Each basis point equals 0.01 percentage point.