Utility stocks are trusted for the long haul for a reason. Commanding permanent relevance, they’re practically impossible to displace.
Stated differently, utility stocks benefit from what’s known as a natural monopoly. While would-be rivals are free to compete with these established entities, they also face considerable hurdles. From high startup costs to onerous regulations, it takes a gargantuan effort to be a utility provider. In the end, it’s just not worth it for those on the outside looking in.
Also, utility stocks may enjoy demographic and geographic advantages. With the post-pandemic economy causing much shuffling of people and businesses, certain fortuitously positioned utilities may see their relevance rise. On that note, here are the companies that you need to pay attention to.
Exelon (EXC)
Based in Chicago, Illinois, Exelon (NASDAQ:EXC) represents the largest electric parent company in the U.S.by revenue. It’s also the largest regulated electric utility in the nation, thus making it a top-tier player among utility stocks. Along with its home state, Exelon owns six regulated utilities that cover New Jersey, Pennsylvania, Maryland, Washington D.C. and Delaware.
As with other utility stocks, Exelon doesn’t exactly feature sterling financials. For example, its cash-to-debt ratio sits at 0.01X, far lower than most of the competition. However, the most important attribute is that it’s consistently profitable. Thanks to the black ink in the bottom line, the company offers a forward dividend yield of 4.2%.
Just as well, the payout ratio comes in at under 58%. While somewhat elevated, this ratio is very reasonable overall, implying confidence regarding yield sustainability.
Lastly, analysts rate shares a consensus moderate buy with a $41 price target, implying over 13% upside potential.
Duke Energy (DUK)
Headquartered in Charlotte, North Carolina, Duke Energy (NYSE:DUK) is an electric power and natural gas holding company. Aside from leveraging a natural monopoly, Duke appeals to forward-looking speculators thanks to its geographic advantage. Millennials have been flocking to the Carolinas (particularly North Carolina), with affordability cited as a key reason.
As well, certain cities in the region are cosmopolitan, similar to big cities but without the price tag. So, in many ways, Duke is positioned where the money will be. Therefore, I’m not particularly worried about some of the challenging metrics that Duke prints on its balance sheet. Instead, I anticipate higher growth over the long run to paper over some of the rough edges.
Even better, the utility firm is consistently profitable. Therefore, it’s able to reward its shareholders with a forward dividend yield of 4.51%. That’s noticeably above the average yield for utility stocks of 3.75%.
In closing, analysts peg shares a moderate buy with a $102.83 price target, projecting over 13% growth.
Sempra (SRE)
Hailing from San Diego, California, Sempra (NYSE:SRE) doesn’t get much love from its customers – I can tell you that right now. However, what the company offers is a large portion of the lucrative Southern California market. Yes, news stories abound about how people are leaving the Golden State due to high costs, taxes and liberals. What they don’t always tell you is that there are plenty of folks moving in.
Yes, certain reports point to people leaving the state. However, many educated and upwardly mobile individuals are also moving in. Further, places like San Diego are simply more important economically to the nation than other cities. Not only does it border Tijuana, Mexico – an important trading route – America’s Finest City is also a massive port tied to the Pacific Ocean.
In other words, Sempra will be relevant for years to come. And that means investors should be able to trust its forward dividend yield of 3.35%. While the payout is a bit lower than other utility stocks, Sempra has been consistently increasing the reward for the past 20 years.
Finally, analysts rate shares a unanimous strong buy with an $82.44 price target, implying 16% upside.
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.
