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Is It Too Late To Buy High-Yield Utilities?

Is It Too Late To Buy High-Yield Utilities?

The utilities index and its corresponding exchange-traded fund, the Utilities SPDR (ETF) (NYSE: XLU) hit a new 52-week high on Tuesday and is up 10 percent in 2017. With that said, Evercore ISI's technician Rich Ross doesn't think it's too late for investors who sat on the sidelines to jump in at current levels.

Speaking as a guest on CNBC's "Power Lunch" segment on Tuesday, Ross explained the factors that typically play against owning utilities, such as rising interest rates, don't factor into ETF investing. He pointed to the utilities ETF chart, which is offering a clear buying signal.

Ross continued by saying the utilities ETF most recently broke out of a 12-month long base of support level after forming a "bull flag" over the past few months. He believes this implies the ETF is setting up for another rally moving forward and there could be upside to $60 per share, or another 12-percent gain.

Yield To Go With It

Meanwhile, the utilities ETF also offers investors an impressive 3.13-percent dividend yield, which is notably above the lows of 1.30 percent.

A 3.13-percent dividend yield happens to be "significantly" greater than the S&P 500's dividend yield of around 1.87 percent, Ross said. Typically speaking, stocks with higher yields tend to rise when interest rates fall, but with Fed talk of an interest rate hike, Ross isn't concerned the utilities ETF will fall.

"Whether those interest rates have been rising or just moving sideways, utilities continue to move forward," he concluded. "[That is] a bullish divergence that tells me you want to be a buyer here of this breakout."

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