When faced with economic uncertainty, investors should turn their attention to utility stocks to buy. Hardly an exciting arena, these critical service providers literally keep societies running. Cynically, this sector benefits from a simple harsh reality: bad things erupt when people flip the switch and nothing happens.
Further, utility stocks thrive on insulation from the trade-down effect. When consumers face financial woes, they don’t always cut their spending cold turkey. Rather, they trade down their purchases until they reach an agreeable equilibrium between quality and pricing. However, no alternatives (save for going off the grid) exists for public utilities: you’re either getting your services or you’re not.
Ultimately, then, this sector provides an attribute that so many seek today – predictability. With that, below are the utility stocks that will be big winners in 2023.
| SRE | Sempra Energy | $158.98 |
| DUK | Duke Energy | $101.42 |
| D | Dominion Energy | $62.32 |
| OGE | OGE Energy | $39.03 |
| YORW | York Water | $45.76 |
| EIX | Edison International | $67.53 |
| NEE | NextEra Energy | $76.59 |
Sempra Energy (SRE)
As one of the largest energy networks in North America, Sempra Energy (NYSE:SRE) commands extraordinary relevance among utility stocks. For starters, you can look at the company’s consumer base of more than 40 million people. More importantly, Sempra owns a considerable geographic advantage. Covering Southern California, you really can’t operate in a more desirable part of the country.
Combining an international borderline with a warm-sea port, the lower half of the Golden State is a veritable gold mine. And because of that, consumers – no matter how much they complain about Sempra – will find a way to pay up. It’s either that or move to Idaho (something that Idahoans would prefer Californians not do).
Better yet, analysts for the most part appreciate SRE as one of the utility stocks to buy. Currently, Wall Street experts rate Sempra a consensus moderate buy. As well, their average price target implies a potential upside of 8%. When combined with the company’s forward yield of 2.89%, SRE makes for an enticing idea.
Duke Energy (DUK)
An electric power and natural gas holding company, Duke Energy (NYSE:DUK) represents a powerhouse name among utility stocks, in this case covering much of the east coast. According to its website, Duke’s electric utilities serve 8.2 million customers in the Carolinas, Florida, Indiana, Ohio, and Kentucky.
Similar to Sempra Energy above, Duke also enjoys a geographic advantage, particularly in terms of millennial migration patterns. Even before the coronavirus pandemic, young people from pricey metropolitan areas looked to more rural regions for lower costs of living. However, the Covid-19 crisis accelerated these financial concerns, thereby speeding up migration among younger age cohorts. With regions like the Carolinas attractive to millennials, Duke is positioned where the money will be.
Currently, covering analysts rate DUK as a consensus moderate buy. As well, their average price target stands at $107.64, implying almost 7% upside potential. Notably, Duke carries a forward yield of 3.98%, making it one of the more attractive utility stocks to buy.
Dominion Energy (D)
Headquartered in Richmond, Virginia, Dominion Energy (NYSE:D) is a power and energy firm supplying electricity in parts of its home state and the Carolinas. As well, it supplies natural gas to parts of Utah, Idaho and Wyoming, West Virginia, Ohio, Pennsylvania, the Carolinas, and Georgia. Per its website, Dominion serves nearly 7 million customers.
To be fair, D stock hasn’t exactly been a great performance, especially compared to other utility stocks. For instance, in the trailing year, Dominion shares gave up nearly 20% of equity value. That said, the fundamentals of millennial migration patterns bode well for the company. As an example, millennials have flocked to Georgia, in particular Atlanta. Many of the other states that Dominion covers also attract young workers and families.
Admittedly, Wall Street analysts rate Dominion as a consensus hold. However, their average price target implies an upside potential of 10%. Combine this with the company’s forward yield of 4.24% and you have a solid case for utility stocks to buy.
OGE Energy (OGE)
Headquartered in Oklahoma City, Oklahoma, OGE Energy (NYSE:OGE) is a holding company with investments in energy and energy services providers offering physical delivery and related services for electricity in its home state and western Arkansas. Presently, OGE commands a market capitalization of $7.68 billion.
While not the most exciting idea in the capital market, OGE more than holds its own against other utility stocks. In the trailing year, shares gained over 3%. To be sure, shares traded in a choppy manner throughout much of 2022. And while analysts aren’t exactly in love with the company – rating it a consensus hold – their average price target implies a potential upside of 6%.
True, it’s not a blistering target. However, the company carries a forward yield of 4.32%. In addition, it enjoys 17 years of consecutive dividend increases, a status management will surely not want to give up on. Finally, on a fundamental level, OGE is undervalued, trading at a trailing multiple of 8.25 (below the sector median of 16.6). Thus, it’s worthy of consideration for utility stocks to buy.
York Water (YORW)
Taking a dive into the smaller side of utility stocks, the Pennsylvania-based York Water (NASDAQ:YORW) is an investor-owned public utility that provides water and wastewater management solutions. It serves an estimated population of 190,000 through approximately 66,000 service connections across 48 municipalities. While definitely not the most invigorating example within the utility sector, for slow-and-steady reliability, it’s hard to beat.
As well, York Water offers a small piece of American history. Per its public profile, the company carries the distinction of being the oldest investor-owned utility in the nation. It also has the longest record of consecutive dividends since 1816. That’s quite a record, needless to say.
Back to the present day, York could use some shoring up of its balance sheet. However, it also features excellent profitability metrics. For example, the company’s net margin of 31.64% ranks above 94% of the competition.
Now, with a forward yield of 1.79%, York isn’t the most generous among utility stocks. Still, if you’re seeking a steady anchor, YORW deserves further investigation.
Edison International (EIX)
Based in Rosemead, California, Edison International (NYSE:EIX) represents a public utility holding firm. Among its divisions stands Southern California Edison, which is one of the largest electric utilities in the U.S., serving about 15 million people. Thanks to providing for the economic powerhouse of the nation, EIX performed well, gaining nearly 8% in the trailing year.
Moving forward, Edison offers an attractive profile for investors seeking dependable utility stocks. First, Wall Street experts maintain generally positive views of EIX, rating shares a consensus moderate buy. Admittedly, their average price target of $70.71 (implying a 5.5% upside) isn’t that hot. However, the company makes up for this with a forward yield of 4.4%.
Significantly, this ranks above the average 3.75% average yield of utility stocks. As well, Edison features 19 years of consecutive dividend increases, a status management will surely want to keep going.
As an added bonus, EIX also pings as objectively undervalued. Currently, the market prices shares at 14 times forward earnings, below the sector median of 16.6 times.
NextEra Energy (NEE)
According to the U.S. Energy Information Administration, most of the electricity produced in this country stems from natural gas, nuclear energy, and coal. Barring dramatic innovations, this narrative might not change in our lifetimes. Still, NextEra Energy (NYSE:NEE) would like to move the needle to the renewable spectrum of the energy value chain.
As one of the biggest capital investors of clean and renewable energy infrastructures, NEE easily ranks among the most relevant utility stocks to buy. Better yet, Wall Street analysts unreservedly support NextEra. Not only do they rate shares a consensus strong buy, but it’s also unanimous among nine experts. As well, their average price target stands at $97.33, implying nearly 18% upside potential.
To be fair, NextEra doesn’t offer the greatest forward yield among utility stocks at 2.06%. However, with a payout ratio of 50.19%, it’s likely a reliable form of passive income. Plus, the company is on a 29-year streak of consecutive dividend increases. Again, management won’t give that up without a fight.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
