Definition of Utilities:
Utility is an organisation that maintains the infrastructure for a public service, such as electricity, water, sewage and natural gas. In recent years, mobile and fixed-line broadband services are being called utilities. Often, the same company in charge of the infrastructure also provides the service.
Utilities can be run by the state, private companies and charities. In the United Kingdom, the Sanitary Districts were established in England and Wales in 1875. During the 1980s, most of the utilities were privatised.
What are utilities?
Energy companies that practise extraction of resources from the ground are not considered utilities. Demand for the services offered by utility companies is generally not greatly affected by the state of the economy, so profits tend to be relatively stable. The utility sector is usually considered a defensive investment because the demand for the services offered by utility companies is not greatly affected by the state of the economy.
Nevertheless, utility companies need relatively large investments to develop and maintain infrastructure, such as water treatment plants and gas pipeline networks. Obtaining these funds by contracting high levels of debt can link utility profits to changes in interest rates.
When a company in any other sector has a predictable demand for their services and steady cash flow, it can be referred as “utility-like”, meaning that the investment risk is low.
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Category: Financial Glossary