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Utility Stocks: The Defensive Anchor in Volatile Markets

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  Published in Stocks and Investing on Monday, November 17th 2025 at 22:54 GMT by The Globe and Mail

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Why Utility Stocks Remain a Defensive Anchor in Volatile Markets – A Deep‑Dive Summary of The Globe & Mail’s “Number Cruncher” Analysis

In a world where equity markets can swing from boom to bust in a matter of months, investors continually seek the next “safe haven” – assets that weather downturns and continue to deliver reliable returns. The Globe & Mail’s recent feature, “Number Cruncher: Utility Stocks Cruncher Defensive Demand Cash Flows,” takes a close look at the utilities sector, using hard data to explain why these companies still command a place at the table for both income‑focused investors and those looking for stability in an uncertain economy.

1. The Core Premise: Utilities as the “Defensive Cash‑Flow Generator”

At the heart of the article lies a simple but powerful observation: utilities—electric, water, and gas providers—generate cash flows that are largely insulated from cyclical swings in consumer spending or corporate earnings. Because electricity, water, and gas are essential commodities, demand remains relatively constant even when GDP contracts. The article points out that during the 2008–2009 financial crisis, utilities outperformed many other sectors, delivering a net‑return of 13% versus a 0% return for the broader S&P 500.

Using a time‑series analysis of the S&P Utilities Select Sector SPDR Fund (XLU), the article demonstrates that over the past decade, utilities have posted an average annual total return of 9.8%—well above the 5.7% average for the broader market. This is a key metric that the author calls the “cruncher”: a statistical engine that turns raw financial data into a narrative explaining how and why utilities stay resilient.

2. Cash Flow Fundamentals: High Free Cash Flow, Low Capital Expenditure Ratios

The article digs into the specific cash‑flow metrics that make utilities attractive:

• Free Cash Flow (FCF) to Net Debt: Across the 10 major utilities in the S&P Utilities index, the average FCF-to-net‑debt ratio sits at 4.5. This figure suggests that these companies generate enough cash to cover both operating expenses and debt obligations with ease.

• Capital Expenditure (CapEx) as a Share of Operating Cash Flow: The sector’s CapEx is consistently below 15% of operating cash flow, a relatively low ratio compared to cyclical sectors like industrials or consumer discretionary. The article attributes this to the stable, regulated nature of utility operations, where infrastructure upgrades are predictable and scheduled long‑term.

• Dividend Coverage Ratio: Utilities typically maintain a dividend coverage ratio above 1.5, meaning the earnings available to pay dividends exceed dividend payouts by 50%. This is a strong indicator of sustainability, even in tight market conditions.

The author uses a table that lists the top five utilities by market cap, showing their FCF, CapEx, and dividend coverage side by side. Readers can immediately spot the pattern: high cash flow, modest CapEx, and generous dividends.

3. Regulatory Environment and Pricing Power

A section of the article is devoted to understanding how regulation shapes utility performance. In most jurisdictions, utilities are “regulated monopolies” with tariffs set by public utility commissions. This structure provides predictable revenue streams and price‑setting power.

The author cites a 2021 report from the International Energy Agency (IEA) that notes utilities can adjust rates in line with inflation and cost‑of‑service changes. This built‑in inflation hedge is a major advantage in rising‑rate environments, especially as the Federal Reserve pushes rates higher to tame inflation.

Moreover, the article touches on the concept of “rate‑base” and “allowed return on equity” (ROE). Utilities can claim a modest return on their regulated assets, ensuring that even in low‑margin scenarios, earnings remain stable.

4. The Rise of Renewable Energy and Green Bonds

Utility investors have historically been drawn to stability, but the transition to a low‑carbon economy is reshaping the sector. The article references the recent push toward green bonds and renewable energy credits. It highlights that 37% of the utilities in the U.S. and Canada now own more than 15% of their generating capacity from renewables, such as wind, solar, or hydro.

The piece explains how this shift improves utilities’ risk profile by diversifying generation sources and mitigating the risk of stranded fossil fuel assets. The author also mentions that many utilities now issue “green bonds” to fund renewable projects, which often enjoy lower yields than traditional municipal bonds because of their environmental appeal.

5. Global Diversification: U.S. vs. Canada

While the bulk of the data focuses on U.S. utilities, the article makes a point of comparing North American players with their Canadian counterparts. Canadian utilities, such as Fortis and Hydro‑Québec, generally offer higher dividend yields (around 5.2% vs. 4.0% for U.S. peers) but have slightly lower growth rates due to a more mature renewable infrastructure base.

The author uses a bar chart to illustrate the dividend yields across the top 10 utilities in both countries, making it easy for readers to compare and decide whether they prefer the higher income of Canadian stocks or the more aggressive growth potential of U.S. utilities.

6. Risks and Caveats

No investment story is complete without a discussion of risks, and the article does not shy away from them:

• Regulatory Risk: Tariff changes or stricter environmental regulations can squeeze margins.
• Capital‑Intensive Nature: While CapEx is low relative to earnings, it can still spike during major infrastructure upgrades.
• Interest‑Rate Risk: Higher rates can increase borrowing costs for utilities that rely on debt financing.

The author offers a balanced view, suggesting that investors can mitigate these risks by diversifying across multiple utility sub‑sectors—water, electric, and gas—and by allocating a portion of their portfolio to utilities with green‑bond exposure.

7. Takeaway for Investors

The overarching message is clear: utilities provide a “defensive” cushion in a portfolio, with consistent cash flows, stable dividends, and regulatory safeguards that protect earnings even in downturns. The article urges investors to:

1. Consider Utilities for Income‑Focused Portfolios: Their dividend yields and payout ratios make them ideal for retirees and those seeking regular cash.
2. Add a Renewable‑Energy Tilt: Utilities that invest heavily in renewables can offer long‑term growth while keeping risk in check.
3. Monitor Regulatory Updates: Stay alert to rate‑setting announcements, as they can impact earnings and dividend sustainability.

8. Broader Context: Linking to Other Globe & Mail Features

The article itself links to two other pieces that deepen the narrative:

1. “Cash Flow Is King: How Investors Can Use Free Cash Flow to Find Hidden Value” – This Globe & Mail analysis explains how FCF can uncover undervalued stocks across all sectors, providing a useful framework for assessing utilities.
2. “The Green Bond Boom: A New Frontier for Income Investors” – Here, the author details how green bonds are reshaping municipal and corporate fixed‑income landscapes, offering a more nuanced view of the sustainability angle discussed in the utilities piece.

These links give readers a broader toolkit to assess whether utilities fit into their overall strategy.

9. Final Thoughts

In a time of heightened volatility and rising interest rates, the Globe & Mail’s “Number Cruncher” article makes a compelling case for the enduring appeal of utility stocks. By combining rigorous cash‑flow analysis, an understanding of regulatory dynamics, and an eye toward the renewable‑energy transition, the piece offers a thorough, data‑driven view of why utilities are, for many investors, a “defensive cruncher” that delivers consistent performance and a cushion against market turbulence. Whether you’re a seasoned portfolio manager or a newcomer to investing, the insights here underscore the importance of looking beyond headline growth figures and focusing on the underlying cash‑flow mechanics that truly sustain long‑term value.