Utility stocks include companies that provide essential services — electricity, energy and water — to communities across the U.S. Because doing this in a country as big as the U.S. is no mean feat, most states have one or two exclusive providers. For this monopoly power, the utilities are regulated not only by the state government but also by the federal government.
Their rates are set and their growth plans have to be approved by state regulators since utilities’ expansion plans are generally funded by their customer bases.
In return for reining in their operations, the state provides a healthy annual growth target for the utilities and also allows them to operate unregulated businesses that can sell power to customers in the open market. This gives utilities good avenues for profits above and beyond their regular business.
What investors get are rock-solid companies that have no trade war drama attached to them, only growing demand for electricity and reliable dividends to add to their capital gains.
The seven utility stocks to trust for retirement below are all A-rated in my Portfolio Grader for momentum. That means the smart money is starting to roll in and will continue to as global growth and tech stocks lose their shine.
PNM Resources Inc (PNM)
PNM Resources Inc (NYSE:PNM) is an electric utility that operates in Texas and New Mexico.
While this doesn’t seem to be a top place to get into the power business, just remember two words: Permian Basin.
The Permian is one of the hottest oil and gas regions in the U.S. today. There is a huge amount of activity going on there now and housing is going up to hold all the workers and supply them with what they need, and want.
Tales of waitresses earning $15 an hour and oil workers in the six digits is already happening and the boom is just starting.
That spells huge growth for PNM, since it’s selling all this new power to the industry and all the businesses that are coming to the region.
This explains why PNM is up more that 20% in the past 12 months, which is a pretty nice run for a utility. Its 2.4% dividend may not be spectacular, but right now, this is about the safest energy play around for long-term investors.
Evergy Inc (EVRG)
Evergy Inc (NYSE:EVRG) is a classic example of a solid energy company that posts reliable returns and delivers a solid dividend. It’s the poster child for compounding.
Having started its life as Kansas City Power & Light and serving the Kansas market for many years, in 2018 it merged with Westar Energy. Now it has 1.6 million customers in both Kansas and Missouri.
This merger will help EVRG grow its base and exercise greater efficiencies that will help it squeeze more profit from its production.
The stock is up 6% in the past year and delivers a solid 3.1% dividend, which adds up to a steady near-10% growth return annually. That’s a lot better than a money market or a CD without taking on a great deal of risk.
Middlesex Water (MSEX)
Middlesex Water Co (NASDAQ:MSEX) is a water utility. There aren’t a lot of these, but they had a run in the 1990s when the economy was weak and municipalities were finding it hard to run and maintain their water systems.
After some consolidation over the years, MSEX remains a long dependable player in the sector. Basically, instead of a city or county managing water resources — wastewater, filtration, distribution, maintenance, etc. — they contract out the work to MSEX.
It currently operates in New Jersey, Delaware and Pennsylvania and has been doing so since 1897.
This is an enduring business, because, like electricity, potable water and wastewater management are crucial to operating a city or town. But it’s generally overlooked by Wall Street.
That’s good news for us. Although a few investors have seen the opportunity here since the stock is up 40% in the past year. Its dividend comes in just shy of 1.6%.
With the U.S. in a steady growth mode, that’s good news for local governments and that’s good news for MSEX.
Exelon Corp (EXC)
Exelon Corp (NYSE:EXC) is a $36 billion utilities network that operates throughout the United States supporting existing utilities as well as operating power generation, marketing and delivery businesses.
Instead of having a traditional home market, EXC moves into markets where the current utility isn’t able to manage its base or can’t find a way to make it.
For example, in Washington, D.C., Potomac Gas & Electric was having a hard time balancing its growing demand with its ability to deliver electricity efficiently. EXC took over the utility and because of its scale, could modernize and upgrade the aging utility.
The company’s flexibility to run or help support utilities is a unique part of EXC’s strategy. And it has been working.
The stock is up almost 23% in the past year and it delivers a reliable 2.9% dividend. And there are still plenty of opportunities out there.
Sempra Energy (SRE)
Sempra Energy (NYSE:SRE) is another hybrid energy company. It has utility operations in the U.S. — San Diego Gas & Electric and Southern California Gas Company — but it also has a variety of other operations that fall more on the unregulated energy side.
For example, it has natural gas pipelines in the South and Southeast. It has a division that focuses on generating renewable energy in the Midwest that it distributes around the country. It also has significant operations in Latin America, supplying infrastructure equipment and gas utilities operations.
It also just signed an agreement with Saudi Arabia to provide 5 million tons of liquified natural gas (LNG) to the kingdom for the next 20 years out of the Port Arthur, Texas LNG export terminal when it’s completed.
Its exposure to the natural gas market, especially the export sector makes this a great choice for anyone interested in stepping into the energy patch without all the volatility that would go along with a dedicated natural gas exploration and production company.
Up 28% in the past 12 months and still delivering a 2.8% dividend, this is a great long-term play on growing energy demand.
Duke Energy Corp (DUK)
Duke Energy Corp (NYSE:DUK) has been delivering power to the people of the Carolinas and beyond since 1900. Today, it remains a classic example of the traditional energy utility that has grown up with the region and has great relations with its state regulators.
Today, DUK has operations in the Carolinas — it started and is based in North Carolina — as well as Florida, Indiana and Ohio. It has also developed a strong group of unregulated energy businesses that help add a little juice to earnings.
While there are some legacy challenges that come along with a utility that has been around so long, they’re not as challenging for DUK because it has such a long history with regulators. Plus, its former longtime CEO Jim Rogers was very far-sighted when it came to investing in renewable energy and a decentralized grid.
And remember, the Research Triangle in North Carolina is the Silicon Valley of the East, so there’s plenty of growth in its backyard. Up 17% in the past year and delivering a 4.1% dividend, this is a blue chip utility.
Southwest Gas Holdings (SWX)
Southwest Gas Holdings Inc (NYSE:SWX) represents a pure play on the natural gas sector.
Coal was the traditional fuel for most utilities’ power plants but as natural gas supply has grown in the U.S. and environmental laws became stricter, cleaner burning and cheap natural gas became increasingly popular.
Now, natural gas is the go-to fuel for most utilities and large companies. SWX focuses its operations in Nevada, Arizona and California. It also has distribution channels to supply other customers around the U.S., but the lion’s share of its business comes from these states.
The natural gas focus is a good way to diversify these long-term picks, since each region and each piece of the grid brings on its own challenges and opportunities. The natural gas market should continue to grow for many years to come and as tensions in Asia and the Middle East grow, an accessible supply of domestic natural gas becomes a prized asset.
SWX is up almost 19% in the past year and delivers a dependable 2.5% dividend. That is a great return for a “boring” utility stock.
Louis Navellier is a renowned growth investor. He is the editor of four investing newsletters: Growth Investor, Breakthrough Stocks, Accelerated Profits and Platinum Growth. His most popular service, Growth Investor, has a track record of beating the market 3:1 over the last 14 years. He uses a combination of quantitative and fundamental analysis to identify market-beating stocks. Mr. Navellier has made his proven formula accessible to investors via his free, online stock rating tool, PortfolioGrader.com. Louis Navellier may hold some of the aforementioned securities in one or more of his newsletters.