What Is the Dow Jones Utility Average (DJUA)?
The Dow Jones Utility Average (DJUA) is one of the Dow Jones index groups that tracks the performance of a small group of prominent utility companies. It is a price-weighted average of 15 utility stocks traded in the United States. Dow Jones first created the DJUA back in 1929 after removing all utility stocks from the Dow Jones Industrial Average. The DJUA is sometimes referred to as the Dow Jones Utilities.
- The Dow Jones Utility Average (DJUA) is a Dow Jones index group that tracks the performance of several well-established utility companies.
- The DJUA selection committee selects stocks based on qualitative and quantitative criteria.
- DJUA companies must be U.S.-based and incorporated with most of their revenues generated within the U.S.
- Analysts monitor developments and trends in the utility sector as they can be telling of other economic trends.
- The utility sector should not be confused with the energy sector, which includes companies that explore and develop natural resources.
Understanding the Dow Jones Utility Average (DJUA)
The Dow Jones Utility Average (DJUA) currently includes major utility companies such as Consolidated Edison, Inc., Duke Energy Corporation, FirstEnergy Corp, American Water Works Company, Inc., and NextEra Energy, Inc.
The 2020 total market cap for the DJUA.
Other investing platforms that specifically focus on utilities include the Vanguard Utilities Index Fund and the Utilities Select Sector SPDR Fund.
The DJUA and the Dow Jones Transportation Average are assigned their own separate categories in the national investment tracking landscape. The pair is detached from all of the other industries in the U.S. equities market that are included in the Dow Jones Industrial Average.
In the U.S. economic landscape, the utility sector encompasses companies and public entities that produce and deliver some type of utility resource, which could include electricity and natural gas, as well as cooled air or steam. This is different from the energy sector, although the two may sound very similar, and some companies may conduct activities that fall into both categories. The energy sector covers companies that are engaged in exploration and development related to natural resources such as coal, natural gas, and oil.
Requirements for the DJUA
To create a Dow Jones index, qualitative and quantitative factors are reviewed and measured. The first step in this process is to identify which stocks to include in the index; then, based on the price per share, stocks are weighted.
The Dow Jones Utility Average includes stocks of well-known utility companies with solid reputations and sustainable growth strategies. They must be based and incorporated in the United States and generate most of their revenues from U.S. operations. In addition, these companies must be attractive investment opportunities, garnering interest from many investors.
There are no rules for keeping stocks in the Dow Jones indices. The selection committee may, at will, make changes based on new developments and corporate actions.
The DJUA as an Economic Indicator
Economic analysts tend to pay close attention to developments and trends in the utility sector because they can be indicative of trends in the economy as a whole. With their major infrastructure and high overhead, utility companies typically carry a lot of debt. This characteristic can make them a reliable early indicator to predict general economic trends in the near future. By carefully observing movements in this sector, economists can draw conclusions about upcoming market trends and interest rate changes.
The utility average tends to decline when investors expect rising interest rates. Utilities tend to borrow a lot of money and, consequently, are more sensitive to changes in interest rates.
Utility stocks are high-yield investments that are subject to interest rate risk. These companies and the sector as a whole are also vulnerable to environmental regulations and government developments that can have a significant impact on their operations and profit potential.
Examples of the DJUA
The Dow Jones Utility Average (DJUA) is a price-weighted index that tracks the performance of the top 15 U.S. utility companies.
American Electric Power (AEP)
American Electric Power is one of the largest electric utility companies in the United States, with a transmission network spanning more than 40,000 miles. AEP serves more than 5 million customers in 11 states through its many operating partners, such as Public Service Company of Oklahoma, AEP Ohio, and AEP Texas.
For 2020, AEP recorded $14.92 billion in revenues—largely attributed to its vertically integrated utilities—and a net income of $2.20 billion. From 2019, its revenues decreased by 4.1%, yet its net income increased by 1.4%. The increase in net income is mainly due to decreased fuel expenses. As of December 31, 2020, its market capitalization was $41.35 billion.
Consolidated Edison (ED)
Consolidated Edison (ED), commonly known as conEdison, is one of the largest energy companies in the U.S. Established as New York Gas Light company in 1823, conEdison provides electric, gas, and steam utility services for the 10 million residents of New York City and Weschester County.
For 2020, Consolidated Edison reported operating revenues of $12.25 billion, a 2.6% decrease from 2019. Its net income from common stock was $1.1 billion, down from $1.34 billion in 2019; and its market capitalization was $24.7 billion as of December 31, 2020, down from $30.1 billion a year prior.
What Are DJUA Index Options?
Dow Jones Utility Average index options are option contracts that are based on the value of the Dow Jones Utility Average.
What Is the Average Dividend Yield for the DJUA Stocks?
As of July 1, 2021, the average dividend yield for the Dow Jones Utility Average stocks is 0%. This yield has remained at 0% for more than 5 years.
What Is the Implied Opening of the DJUA?
At market close, 4 pm Eastern, forecasts are made about the price the Dow Jones Utility Average will open the following day. These implied openings or forecasts fluctuate until the market reopens.
The Bottom Line
The Dow Jones Utility Average (DJUA) tracks the stocks of 15 of the most prominent U.S. utility companies. Trends in this index are indicative of trends in the economy, which is why the stocks are carefully and consistently reviewed to be part of the index.