As good as gold?

Utilities outperform the yellow metal…for now

Back in the frigid days of early January, most of the speculation was whether gold would climb to $6,000 and beyond during the year. Why not? The price of the precious metal had risen by hundreds of dollars and there appeared to be no end in sight. Central banks were building their reserves, and investors who had never owned gold before were starting to figure they were missing out.

The boom went on for another couple of months; then the U.S. and Israel launched full scale attacks on Iran, setting off a new war. That should have been the signal for gold to skyrocket. Instead, it fizzled. Investors became more concerned about the impact of the war on inflation, which is always bad for gold. The “safe haven” philosophy of owning gold in times of geopolitical stress gave way to a combination of inflation worries and profit taking. As of mid-year, the S&P/TSX Global Gold Index is down 7.38% for 2026. That was the third-worst performance among the TSX sub-indexes.

As you might expect, Energy has been the strongest performing sector so far this year, although that could change quickly if this ceasefire holds in Iran and the Strait of Hormuz is reopened (an increasingly unlikely event as subsequent events have proven). Financials are next. In third place is the humble Utilities sector with a gain of 16.21% YTD, almost double the gain of the Composite.

Bedrock utilities

I have always seen Utilities as the bedrock of any conservative portfolio for several reasons. First, they are essential services. They keep your power on and your house warm. They are in no danger of going out of business. Second, their rates are regulated, so their income will always be secure and profitable. Third, they have a long history of annual dividend increases. The two companies with the longest history of increasing payments (over 50 years) are both utilities – Fortis Inc. (TSX: FTS) and Canadian Utilities Ltd. (TSX: CU).

All of these are key reasons to own utility stocks. But I'm not suggesting you buy them – at least not yet. Here's why.

Utilities are highly interest-rate-sensitive. They tend to thrive when rates are low but trail the broad market when they are rising. Utilities tend to fall when interest rates rise because they are often considered as the stock market equivalent of bonds. They pay stable and relatively high dividends, but when rates are moving higher, investors want a better return than comparable risk bonds offer. The result is to put downward pressure on the share price, reducing yields, and maintaining the spread with bonds.

For example, when interest rates rise, newly issued bonds offer higher yields. Investors who were buying utilities for a 4% dividend may switch to safer bonds if they can earn 5% with much less risk. As this happens, the price of utility stocks will generally drop.

Of course, there are other factors at work, like borrowing costs. Utilities are large companies that borrow heavily to finance everything from transmission lines to new power plants. Rising rates mean higher debt costs, which impact the bottom line.

Another negative is the slow growth in these stocks. Most Canadian utilities are regional, although some have purchased foreign assets to diversify. Still, their growth profile is a turn-off for investors who are seeking capital gains. They are more interested in Space Exploration Technologies Corp. (NSD: SPCX) than in (ho hum) Emera Inc. (TSX: EMA).

There’s nothing wrong with that, but right now utility buyers are getting the best of both worlds: respectable dividends from stocks trading near historic highs. That’s unlikely to continue much longer. I’ll explain why in a future article.

Gordon Pape is one of Canada’s best-known personal finance commentators and investment experts. He is the publisher of The Internet Wealth Builder and The Income Investor newsletters, which are available through the Building Wealth website.

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Notes and Disclaimer

Content © 2026 by Gordon Pape Enterprises. All rights reserved. Reprinted with permission. The foregoing is for general information purposes only and is the opinion of the writer. Securities mentioned carry risk of loss, and no guarantee of performance is made or implied. This information is not intended to provide specific personalized advice including, without limitation, investment, financial, legal, accounting, or tax advice. Always seek advice from your own financial advisor before making investment decisions.

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