Over the past year, the utilities sector has notably lagged behind the overall market. The Utilities Select Sector SPDR Fund (NYSEARCA:XLU) has gained only a modest 6%. This largest utilities ETF underperformed the S&P 500‘s significant 18% increase during the same period.

This nonsuccess can be largely attributed to persistently high interest rates. With elevated rates, investors have shifted their focus from utilities to fixed-income securities. An example is government bonds, which tend to offer higher returns with lower risk. In such an environment, the appeal of holding utility stocks diminishes as safer alternatives become more attractive.

Regardless, this sector-wide underperformance has led many utility stocks to trade at tempting valuations. For investors seeking value, now might be a great time to consider some names in the sector. Let’s delve into three utility stocks that offer compelling investment cases amongst their peers. These companies offer solid fundamentals but also sturdy growth prospects and dividend stability.

Middlesex Water (MSEX)

Regulated water utility Middlesex Water Company (NASDAQ:MSEX), a providing essential water and wastewater services to customers in New Jersey, Delaware and Pennsylvania. Established in 1897, Middlesex Water has built a robust operational framework that ensures consistent service quality and reliability.

The company is known for its exceptional track record of earnings and dividend growth. These results are predictable revenue streams inherent in regulated utilities. As a regulated water utility, Middlesex Water can adjust its rates to reflect changes in operating costs, ensuring stable and predictable cash flows. This basically allows Middlesex to consistently invest in infrastructure upgrades and expansions, further bolstering its long-term growth prospects.

Evidently, Middlesex Water has increased its dividend every year over the past 51 years. Yes, that’s over five decades of consistent dividend growth despite the various recessions and economic downturns. This highlights the unique strengths of the company’s business model. At a forward P/E of about 30X, MSEX stock is not particularly cheap. Nevertheless, the stock has always traded at a steep premium.

American Water Works (AWK)

The largest U.S. publicly traded water and wastewater utility is American Water Works (NYSE:AWK). While it began trading publicly in 2008, its origins date back to 1886. Today, the company provides essential water services to roughly 14 million people across 46 states and Ontario, Canada.

As a regulated water utility that shares the same qualities as MSEX, American Water Works has managed to grow consistently and at a steady pace over the years. For context, over the past decade, its revenues have increased at a compound annual growth rate (CAGR) of 4%, a modest but steady pace. Further, AWK’s earnings-per-share have grown at a CAGR of about 9% over the same period. This is largely due to cost efficiencies and economies of scale.

Therefore, the company has no issues with rewarding shareholders with a progressive dividend. Since its public debut, American Water Works has raised its dividends annually, now counting 16 consecutive years of dividend growth, with dividends per share growing at a CAGR of 9.8% over the past ten years. This trend is likely to continue moving forward. Thus, while the dividend yield of 2.2% may not seem too spectacular, the stock’s dividend growth prospects remain highly attractive.

Fortis (FTS)

Fortis (NYSE:FTS) is a leading utility company in Canada with a major presence across North America. The company’s assets, which include electric and gas utilities, are highly critical to the regions they serve. Virtually 100% of Fortis’ assets are regulated, providing the company with stable and predictable cash flow, similar to Middlesex and American Water Works. This stability has been a cornerstone of Fortis’ consistent performance, enabling steady growth in both earnings and dividends over the years.

In fact, one of Fortis’ most impressive achievements is its streak of 50 consecutive years of dividend increases. The pinnacle makes it a constituent of the elite group of stocks known as Dividend Kings. This track record clearly highlights Fortis’ ability to sustain healthy financials and continue rewarding shareholders with growing capital returns even during unfavorable economic environments.

In the meantime, shares are lagging behind in recent years due to elevated interest rates against Fortis’ growing earnings. However, the stock’s forward P/E has been compressed to just about 17.6X, somewhat under its historical average. Along with the stock coming attached to a 4.2% yield, today is a great time to consider Fortis. It’s a quality utility to generate stable and growing income over the long term.

On the date of publication, Nikolaos Sismanis did not hold (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.

On the date of publication, the responsible editor did not have (either directly or indirectly) any positions in the securities mentioned in this article.