A great option for buy-and-hold investors.
Utility stocks are some of the most stable investments around. For starters, energy is a necessity like food and water. Additionally, electric utilities don’t really have much competition thanks to their geographic dominance and a highly regulated industry that prevents new entrants. Equally compelling is that the regular revenue stream from customers generates a regular income stream of dividends to shareholders. If you’re looking for an investment to hold for decades, then utility stocks are a great option. Keep in mind some utilities are smaller and less reliable, with very modest dividends, and that the best investments in this sector have big scale as well as big yield. Here are seven utility stocks to consider.
Southern Co. (NYSE: SO)
Southern Co. is one of the largest utilities in the U.S., serving 19 states through various subsidiaries. While its oldest core holdings including Alabama Power and Georgia Power are electric utilities, the firm’s Southern Company Gas operates a massive natural gas distribution business from Maryland to Florida and its Southern Telecom is a play on fiber optics in the Southeast. SO stock offers scale and stability, and is a consistent dividend payer that has mailed checks to shareholders since 1982. On top of that, Southern Co. has raised dividend payouts at least once each year since 2001 even as it has continued to expand aggressively into other businesses and geographies.
Dividend yield: 4.5 percent
Duke Energy (DUK)
Duke Energy is another massive utility serving the South, with operations across North Carolina, South Carolina and Florida. After a 2012 merger with Progress Energy, the firm became the largest electric utility in the nation based on the number of customers. Duke raised its dividend in November, pushing the yield to 4 percent. The electric company has asked regulators in North Carolina to approve a rate increase on more than 1 million customers, in part because of increased costs associated with the cleanup of coal byproducts. Duke has to either find a better way to clean up its coal plants or invest heavily in cleaner power generation, but its size and scale make it a safe long-term income bet.
Dividend yield: 4 percent
Exelon Corp. (EXC)
Exelon is another utility that, like Southern Co., has expanded significantly via acquisitions. It operates electric utilities in six markets through companies like Maryland’s BGE and New Jersey’s Atlantic City Electric and has a diverse portfolio of power generation facilities. Exelon stock has been pretty flat in the last few years as spending on acquisitions and new power plants has held back the bottom line. But that investment may ultimately be a great long-term catalyst for the company. And besides, it has paid dividends to shareholders consistently and will continue to do so at a decent yield going forward.
Dividend yield: 3.1 percent
Dominion Energy (D)
Dominion generates electricity mainly in the mid-Atlantic region of the U.S. from North Carolina to Pennsylvania. It also distributes natural gas across a wide swath of the West from Utah to Wyoming after its recent acquisition of Questar Corp. last year. The impressive size of Dominion as a $50 billion utility, as well as its range across subsectors and geography, ensure stability. But one recent headline that should pique investor interest is a recent contract to provide renewable energy to a Facebook (FB) data center in Virginia. Sure, Facebook is getting a favorable rate structure here, but that kind of willingness to meet big corporations where they live is a strong sign that Dominion is not doing things the old way.
Dividend yield: 3.7 percent
American Electric Power (AEP)
American Electric Power has simply been on a tear in the last five years, with shares modestly outperforming the Standard & Poor’s 500 index since November 2012 even as dividends have surged 31 percent during the same period. The result is a very nice 3.2 percent yield — almost a full percentage point higher than 10-year U.S. Treasurys — on top of tremendous share appreciation. AEP consistently reinvests its profit into long-term growth. On the horizon is a roughly $18.2 billion upgrade to distribution and transmission facilities to boost margins and efficiency by as much as 7 percent over the next three years. In an industry where growth isn’t easy, AEP has shown it knows how to expand through moves like this.
Dividend yield: 3.2 percent
Consolidated Edison (ED)
ConEd, as it is known to the some 10 million customers it serves around New York City, is a textbook dividend investment. It yields more than 3 percent, paid distributions to shareholders for more than a century and increased dividends at least once annually for 43 consecutive years. What more do you need to know? Utility stocks in general are safe bets because of their virtual monopolies within certain geographies, but ConEd stands out because it is the major player for the all-important region around the Big Apple. Particularly with demographic trends showing a trend toward urban living versus rural population growth, this makes ED stock a rock-solid dividend play.
Dividend yield: 3.1 percent
NextEra Energy (NEE)
While NextEra Energy has the smallest yield of the group, it boasts the largest market capitalization of these seven utility stocks. Coming in at more than $73 billion in value, this company is among the 80 largest on the entire U.S. stock market and on par with Starbucks Corp. (SBUX) and Costco Wholesale Corp. (COST). The downside is NextEra serves much of Florida hit by hurricanes and had to spend an estimated $1.5 billion on repairs thanks to Harvey, and Irma will cost NextEra an estimated $1.3 billion. However, NEE stock is proposing $4 in surcharges per customer next year to offset the expenses, and if that holds true than the electric utility should bounce back nicely in the next 12 months.
Dividend yield: 2.5 percent
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7 Utility Stocks with Powerful Dividends originally appeared on usnews.com
