Utility stocks have features that make them desirable in almost any investment portfolio. They are stable stocks, most of them have an attractive dividend yield suitable for income generation and several of them can be value stocks to add a margin of safety when investing in the long-term compared to the regular stock market volatility. It is worth mentioning that often utility stocks are generating stable revenue and even consistent growth.
Utility stocks can also be considered as a haven investment mostly during times of economic downturns or financial market turbulence. The following utility stocks can add diversification benefits with the safety of regular dividend income plus future stock price potential appreciation as they are value stocks, and are considered to be undervalued at recent stock price levels.
To me, these utility stocks are far from being considered boring stocks, compared to the tech stocks that have a larger considerable risk. A stock with good fundamentals, an attractive dividend yield, and safety of margin comparing its stock price to its intrinsic value is worth a closer look and financial analysis. In today’s zero-rate environment, stocks with attractive dividend yield can be suitable both for passive investors and for active investors.
These utility stocks to consider for uncertain times are:
Dependable Utility Stocks: NRG Energy (NRG)
NRG stock’s performance on a year-to-date basis of -19.07%. But this could well be an attractive time to buy it now.
Recently there was good news that the board of directors declared a quarterly dividend on the company’s common stock of 30 cents per share, or $1.20 per share on an annualized basis. In 2017, 2018, and 2019 the dividends were stable at 12 cents per year respectively.
This large increase in the annual dividend, a very low P/E ratio, an increased operating margin for the past five years, and a net margin that went from just 2.83% in 2018 to 45.19% in 2019, while the company was unprofitable in 2017, 2016 and 2015 respectively, makes this stock an interesting turnaround successful story to monitor.
NRG stock has experienced growth too. While the five-year average growth for revenues is -9.15% and is a negative fundamental factor, the five-year average growth for net income and EPS is 101.38% and 135.92% respectively. An increase in EPS can mean a further increase in dividends.
Enel Americas (ENIA)
ENIA stock is down almost -40% in 2020. Another opportunity to buy an attractive stock and a value stock at a good price, a buying opportunity? It seems so as the fundamentals are good, with a positive and increasing revenue trend for the past five-year period, an increase in EPS, and strong positive free cash flows.
The annual dividend has increased for the past two consecutive years from 31 cents in 2018 to 41 cents in 2019 and it seems that 2020 will be the third consecutive year of a dividend increase. The five-year average growth for revenue is +3.01%, which may not seem much, but the growth for some period of net income and EPS is 11.33% and 5.43% respectively, showing a stable and positive trend. Return on equity, which is a key financial metric for profitability, has improved significantly from 7.79% in 2016 to 19.34% in 2019.
Companhia Paranaense de Energia (ELP)
ELP stock is down nearly -34% in 2020. Another stock considered to be a value trap? I do not think so. For starters, the company has a strong balance sheet with a moderate debt-to-equity ratio of 0.56. The stock has qualitative features that my financial analysis considers highly desirable. Some of them are an increase in revenue, net income, EPS for the past five-year period. While long-term debt has increased and is a negative factor, the stock has witnessed a remarkable growth in free cash flow for the past two years. From $281.9 million in 2018 to $2.4 billion in 2019.
Profitability and dividends have both increased too in the past 5 years. The stock has a PEG ratio of 0.62, showing growth too in earnings per share. five-year average growth for revenue is 3.14%, but net income growth and EPS growth are both consistent and positive, being 10.54% and 10.53% respectively.
All of these utility stocks can provide sustainable dividends and income plus they have plenty of potential for their stock price appreciation. If the main goal is to diversify your stock portfolio with stocks that can a safe, and stable utility dividend, further financial analysis is suggested. But the qualitative features of these utility stocks makes them to a large degree dependable for income generation, and even considerable potential stock price appreciation, the good of both words of investing in stocks.
On the date of publication, Stavros Georgiadis, CFA did not have (either directly or indirectly) any positions in the securities mentioned in this article.