If there was ever a time to ponder the greater meaning in life, now would be it. Over the trailing year, we’ve suffered through a once-in-a-century pandemic, social and political discord and unrest. More recently, we’ve dealt with the blockage of the Suez Canal. Naturally, investors are worried where to put their money. In these circumstances, it’s time to consider utility stocks to buy.
For one thing, water and power are absolute necessities in our modern society. When people go flip the switch and the light doesn’t turn on, bad things happen. Extended blackouts unfortunately lead to restlessness, which then transitions to criminality. Not only that, power loss can be fatal in certain conditions, as we saw during the Texas winter storm. Therefore, utility stocks are a play on national welfare and security.
Further, you can make the argument that this sector represents the ultimate safe haven asset. Yes, I understand that precious metals traditionally take this mantel. Certainly, I have argued for their inclusion in a diversified portfolio. Nevertheless, the longstanding criticism that commodities don’t do anything rings true. With utility stocks, most of them pay dividends, which is much more than you can say about a bullion bar.
Also, if I’m being fair and objective, the current run in traditional metal havens has been disappointing. Much of this has to do with the evidence of inflation — we’re just not seeing it in key monetary and economic metrics. For instance, money velocity or the rate each unit of currency circulates in the economy is down near all-time lows. That’s deflationary, which negatively impacts metal prices but hasn’t had a discernible effect on utility stocks.
Again, this has to do with the sector being, well, utilitarian. No matter what is going on with the economy — good, bad or indifferent — you need access to power and resources. Therefore, these utility stocks have a permanent relevance that you can’t ignore, especially during these times:
- Duke Energy (NYSE:DUK)
- Sempra Energy (NYSE:SRE)
- Vistra (NYSE:VST)
- UGI Corporation (NYSE:UGI)
- NextEra Energy (NYSE:NEE)
- Edison International (NYSE:EIX)
- York Water (NASDAQ:YORW)
While you can set and forget these utility stocks, keep in mind that no investment class is totally risk free. If we do encounter a broader market correction, all sectors are liable for downside movements. That said, the dividend-bearing utilities should weather the red ink better than other market segments.
Utility Stocks: Duke Energy (DUK)
An oldie but a goodie, when I’m on tap discussing utility stocks, Duke Energy comes top to mind. As a well-established player in the electric power market, Duke primarily serves the Midwest and eastern states, including Florida. Particularly, the Sunshine State along with the Carolinas represent popular destination regions for upwardly mobile millennials.
If you’re going to bet on utility stocks, you might as well place wagers on firms that service where people are migrating to.
Another reason to consider DUK stock is the dividend. According to Dividend.com, Duke Energy has a yield of 3.93%. Further, the company has 14 consecutive years of dividend increases. That’s not something to overlook, especially when we just don’t know what’s ahead of us.
One factor to watch out for is Duke’s financials. It took a 5% revenue hit compared to the prior year’s tally due to the novel coronavirus impact. Moving forward, though, the company should make up for lost time, possibly from the migration effect. Certainly, investors believe in DUK stock, which is up 7% over the trailing month.
Sempra Energy (SRE)
An energy infrastructure company, Sempra Energy is a mundane investment if you’re looking for capital gains. This dynamic doesn’t separate Sempra from other utility stocks, that’s for sure. But if you want a reasonably safe place to park your money and earn some passive income in the process, SRE stock might be your ticket.
Mainly, it goes back to the coverage catalyst. Sempra focuses most of its operations in southern California, particularly San Diego. One of the worst kept secrets anywhere, San Diego is not only America’s finest city but one of its most important. First, all coastal cities carry geographic significance. Second, San Diego borders Tijuana, Mexico — the world’s busiest land border according to Reuters.
Essentially, serving this area means that you’re serving a viable economy, arguably one that’s permanently viable. Better yet, recent momentum in SRE stock suggests that investors at large are picking up on this bullish thesis.
Even if the argument doesn’t quite pan out, you can always count on its 3.14% dividend yield. Sempra has 10 consecutive years of dividend increases.
Representing one of the most comprehensive solutions among utility stocks, Vistra has a significant footprint in the U.S. energy infrastructure through its retail and power generation businesses. Overall, its corporate umbrella brings products and services to 20 states, including six of the seven most competitive markets in the country.
That sounds great on paper for VST stock. The problem is that one of those competitive markets is Texas, which its TXU Energy brand services. I think you know where I’m going with this. First, you have the utter devastation of the cold snap. Second, according to The Guardian, the impact may haunt affected residents for years.
Naturally, VST stock absorbed some heat for the general unpreparedness of the Texas grid. Still, for the contrarian, Vistra may offer an intriguing opportunity as far as utility stocks are concerned. Namely, the disaster didn’t stem from any one culprit but a perfect storm of negative catalysts. And moving forward, Texans will still need power.
Currently, VST has a dividend yield of 3.23%. However, the company only has one year of consecutive dividend increases so it doesn’t have the track record of other utility stocks.
UGI Corporation (UGI)
An international energy distribution and services company with a specialty in natural gas and electricity, UGI Corporation is another well-established player for the eastern side of the U.S. What’s appealing is that many of the states that UGI covers, such as North Carolina and Ohio, are popular destination spots for millennials.
As with the other utility stocks, you want to bet on companies that serve areas where people are moving to, not the other way around. Plus, with UGI’s coverage of New York, it serves a locale which may very well be permanently relevant, despite people leaving in the near term.
Further, UGI levers a midstream business, which I believe will be more significant as the nation reopens. With people going back to work and resuming their normal daily schedules, we’ll see greater demand for energy.
Like other utility stocks, UGI suffered badly from the coronavirus pandemic. In its fiscal year 2020, revenue declined by 10% against 2019 results. However, its most recent quarter ended Dec. 31, 2020 pared revenue loss to 4% year-over-year.
At time of writing, UGI has a 3.1% dividend yield. Further, UGI enjoys 25 years of consecutive dividend increases.
NextEra Energy (NEE)
Prior to the destructive winter storm, NextEra Energy was on a veritable upswing — and really, who’d bet against this shining star among green energy stocks? For starters, millennials are all about sustainability and environmentally responsible living. Second, NEE stock enjoys a political catalyst in the form of the Biden administration.
With an ambitious goal to get the U.S. to become a net-zero emissions economy by 2050, the groundwork starts today. Therefore, NextEra has a substantial advantage in its eco-friendly operations and overall branding. Unfortunately, that narrative took an unexpected blow from the Texas cold snap.
I’ve mentioned this several times before so I won’t dive into the details. But long story short, certain media circles took this as an opportunity to blast the renewable energy sector. And the criticism stuck because there was a ring of truth to it: wind and solar are indeed intermittent. But we’ve always known this and it couldn’t be helped that other power sources also failed miserably.
Anyways, the misguided narrative imposed red ink on NEE stock. However, we could be seeing a turning point as NEE is up nearly 5% over the past month.
Edison International (EIX)
As one of the nation’s largest utility stocks, Edison International belongs in your portfolio if you’re looking for economic firepower. Through its subsidiary Southern California Edison, it covers most of Los Angeles, Orange, San Bernardino and Riverside counties. With the Golden State having the world’s fifth-largest economy, an investment in EIX stock carries more weight than your typical utility play.
To be fair, this narrative hasn’t quite panned out in the technical charts. Due to the severe disruption of the coronavirus from Edison is still recovering from, EIX stock is down 14% over the trailing five-year period.
Nevertheless, it’s also fair on the other end to note the financial statements. In 2020, Edison generated $13.6 billion in revenue, which was up 10% from 2019’s tally. Many other utility stocks can’t claim such a fiscal rebound so quickly.
Moving forward, I see EIX stock making up the ground it lost in 2020 on the technicals. Yeah, people hate the high taxes in this state. But California is too important of a region for the U.S. so the relevance is not going anywhere, even if a few people call it quits.
And I hope they do because the traffic here stinks.
York Water (YORW)
A public water works covering 49 municipalities in York and Adams Counties (hence the corporate name) in Pennsylvania, York Water has a rich and storied history. The company was founded in 1816 and according to its website, it’s the oldest investor-owned utility in the nation.
To put this into perspective, James Madison was the President of the United States in 1816. As well, Abraham Lincoln, who is considered by many to be one of our greatest presidents, was only a child during the founding of York Water. Logically, this means the company endured the ravages of the Civil War and every war that the U.S. fought since then.
Put another way, if you’re looking for dependability in your utility stocks, you will not find a better name than YORK stock. In terms of historical track record, this is not a matter of opinion.
Now, in modern times, YORK stock isn’t the brightest name you can own. For instance, its dividend yield of 1.46% is rather pedestrian. And for all its history, it currently only has one consecutive year of dividend increases, which isn’t great. Still, this is a name that’s not going anywhere — and 1.46% isn’t zero like other safe havens.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.