Utility stocks offer essential services like electricity, water, and gas, presenting a defensive option for investors seeking lower volatility. These stocks typically feature higher dividend yields with current annualized yields ranging from 2.7% to 4.3% and low 30-day implied volatility.

XLU, a popular utilities ETF, demonstrates lower correlation to the broader market and smaller percentage swings during both rallies and drawdowns. While utilities can be negatively impacted by rising interest rates due to their high debt levels, they may become more attractive as rates decrease.

With low correlation to both equities and bonds, utilities can effectively diversify portfolios.