Utility stocks are not your most glamorous investment these days, but they still play an integral part in a well-rounded portfolio. Utilities’ reliable earnings often result in above-average yields and regular dividend payouts.
They offer stable returns, which often attract low-risk investors. In addition, the number of competitors is low, and it’s a regulated industry with predictable prices. Hence, utility stocks offer a more than decent hedge in an uncertain trading environment.
Utilities provide various services, including natural gas, wastewater, electricity, water, and others. The steady demand for these services allows for a steady income stream and predictable profits. However, not all utility stocks deliver competitive returns. Therefore, it is imperative to go for companies with a pristine financial profile and strong growth prospects.
The list below includes seven of the best utility stocks in the market today, based on a combination of these factors. Let’s take a look:
- American Water Works (NYSE:AWK)
- Brookfield Infrastructure Partners (NYSE:BIP)
- NextEra Energy (NYSE:NEE)
- The AES Corporation (NYSE:AES)
- Edison International (NYSE:EIX)
- Idacorp (NYSE:IDA)
- Middlesex Water (NASDAQ:MSEX)
Utility Stocks to Buy: American Water Works (AWK)
American Water Works is the United States’ largest publicly traded wastewater and water utility. The majority of its revenue come from its core business, which involves providing wastewater and water services. A relatively smaller share of its revenues comes from its less-predictable market-based activities.
AWK stock boasts an incredible dividend portfolio with a payout ratio of over 50% and a yield of over 1.4%.
The company expects to grow its earnings per share by 7% to 10% per year on average over the next five years. The primary driver of this growth is a multibillion-dollar utility expansion program. Moreover, its financial flexibility is impeccable, which enables it to carry out its expansion efforts effectively.
Hence, AWK stock is a high-quality utility that has several promising growth prospects ahead.
Brookfield Infrastructure Partners (BIP)
Brookfield Infrastructure Partners operates various infrastructure businesses, including energy, transport, data infrastructure and regulated utilities. Hence, it has an incredible range of assets under management which have a total value of close to $100 billion. Moreover, BIP stock is up a whopping 44% in the past 12-months.
Brookfield’s earnings performance has remained consistent despite the pandemic’s impact on segments of its business. Moreover, it appears to be back to winning ways, as it posted 53% growth in its revenues in its most recent quarter. Its five-year average revenue growth rate is at a spectacular 35% and an EBITDA growth rate of 33%.
Perhaps what’s most impressive is its dividend portfolio, with a yield of over 3.50% and a payout ratio of over 100%. It all adds up to Brookfield as a complex entity with an exceptional growth runway ahead.
NextEra Energy (NEE)
NextEra Energy operates regulated utilities in the state of Florida. Additionally, it also owns a non-regulated energy business, which generates predictable cash flows. As a result, it expects its EPS to rise by 6% to 8% by 2023, which are significantly higher than its peers at this time. Despite the pandemic-induced slowdown, NEE stock generated a 12-month return of 29%.
The energy industry is in the stages of its transition to renewables. NextEra Energy appears to be leading the pack as a producer of electricity through renewable sources. It has a stellar portfolio with a strong balance sheet which helps fund its expansion programs organically.
It boasts an impressive dividend profile, with a dividend yield of roughly 2%, 26 years of growth, and a payout rate of 61%.
The AES Corporation (AES)
AES Corporation is a power generation and utility company operating across multiple continents, including North America, South America, Asia, and Europe. It is currently a leader in renewable energy deployments in Latin America and the U.S. Moreover, it is one of the few utilities leading the charge toward a successful portfolio transformation to lower carbon. Additionally, AES stock is one of the best performing utilities, returning 113% in the past 12 months.
AES has been pursuing a strategy to effectively replace its thermal portfolio with renewables in its key operational areas. The transformation is a herculean effort, and the company has had to sacrifice a substantial amount of its revenues. However, AES is cementing its long-term positioning by focusing on the technologies of tomorrow.
Its dividend portfolio is amazing, with a yield of more than 2% and a five-year growth rate of roughly 7.20%.
Edison International (EIX)
Edison International is a power generation primarily operating across Southern, Central, and Coastal California. Additionally, it also offers energy solutions to industrial and commercial users. Moreover, it is one of the few electric utilities that is pushing for renewable energy.
Wildfire-related claims have been a thorn in its side off-late, but it expects a 25% reduction in the ignition in fire-risk areas in 2022. Overall though, EIX stock is one of the most attractive utility stocks in the market.
Earnings results have been consistent overall with positive revenue and EBITDA growth in the past four quarters. Year-over-year revenue growth is now at a spectacular 10%, along with EBITDA growth at 15.80%.
What’s more staggering is its dividend profile, with its yield over 4.50% with a payout ratio of roughly 59%.
Idacorp is the primary electric utility operating in Idaho. It operates hydropower plants and natural gas and coal operations providing power to more than 500,000 customers.
It’s well on its way to source most of its power from renewables. Revenues have been relatively stable over the years, with an impressive operating cash flow growth.
Apart from its revenues, its return on equity is exceptional at 9.50% over the past several years. Its cost control is impressive and is a key element of its low prices and returns. Therefore, it is one of the best-managed utility stocks in the market at this time.
Its dividend scorecard is impressive, with a yield of roughly 2.90% and a payout ratio of close to 60%.
Middlesex Water (MSEX)
Middlesex Water is a wastewater utility that caters to industrial, residential, and commercial customers in New Jersey, Delaware and Pennsylvania. It generates predictable revenues and is one of the lowest-risk companies amongst its peers.
Moreover, it has remained resilient despite the pandemic, with a 5% revenue growth on a year-over-year basis. In addition, 12-month returns from MSEX stock have also been fantastic at roughly 40%.
Middlesex’s most recent quarter results have been splendid. Revenues grew 5.20% to $141.6 million, and net income was also up 13.40% year-over-year. In addition, its top and bottom-line hit all-time highs in the fiscal year 2020, which has meant that the business has been recession-proof.
It has a solid track record of paying dividends, with a 1.30% yield and 17 years of dividend growth.
On the date of publication, Muslim Farooque did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Muslim Farooque is a keen investor and an optimist at heart. A life-long gamer and tech enthusiast, he has a particular affinity for analyzing technology stocks. Muslim holds a bachelor’s of science degree in applied accounting from Oxford Brookes University. He does not directly own the securities mentioned above.