The Utilities Select Sector SPDR Fund (NYSE:XLU) generates income by holding dividend-paying utility companies and passing those dividends to shareholders. With 99.5% of assets concentrated in the utilities sector, the fund functions as a pure play on regulated infrastructure companies. The current 2.75% yield comes with minimal costs, as the fund’s low 0.08% expense ratio ensures nearly all dividend income reaches investors.
For income-focused investors, the question isn’t whether XLU pays dividends, but whether those dividends will continue. The answer depends on the financial health of the companies underneath.
Top Holdings Drive the Dividend Stream
NextEra Energy (NYSE:NEE) leads the portfolio at 14.06%, followed by Southern Company (NYSE:SO) at 7.46% and Duke Energy (NYSE:DUK) at 7.13%. These three companies set the tone for XLU’s dividend safety.
NextEra demonstrates strong dividend sustainability through its conservative approach to capital allocation. The company maintains a payout ratio of 69.1%, which provides substantial cushion for future increases. This financial discipline has enabled management to raise quarterly payments by roughly 10% annually, supported by earnings growth of 25.8% that gives the company flexibility to both reward shareholders and fund infrastructure investments.
Southern Company and Duke Energy follow similar patterns of consistent dividend growth, with both companies operating regulated utilities that generate predictable revenue streams. Southern raised its quarterly payment from $0.72 to $0.74, while Duke increased from $1.045 to $1.065. Both maintain manageable payout ratios backed by decades of uninterrupted payments.
Interest Rates and Total Return Context
The interest rate environment has shifted in favor of dividend-paying utilities. The 10-year Treasury yield currently sits at 4.09%, down from 4.58% in May 2025. This decline reduces the opportunity cost of holding dividend stocks while easing refinancing pressure on utility debt.
Over the past year, XLU has delivered strong total returns of 20.41% as investors recognized the value proposition in utilities. The ETF’s dividend stream has shown some year-over-year variation, with 2025 payments tracking toward $2.00 annually, down from $2.24 in 2024. This modest fluctuation reflects portfolio rebalancing rather than fundamental weakness, as the fund has maintained its uninterrupted payment history since 1999.
The dividend appears safe because the companies paying it are stable, regulated businesses with decades of uninterrupted payments.
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