Key takeaways
- Utilities are needed for everyday life, so even during a down market they are still a good investment – see the list of securities below.
- To offset the lack of long-term growth, most utilities pay a healthy dividend that helps provide a higher overall long-term return.
- Many utilities are working on updating their infrastructures to renewables and other green technology.
Are you looking for a safe, conservative investment option to help you ride out the volatility of the market right now? If so, consider investing in utility stocks. Utility stocks are a staple of many investment portfolios, and for good reason. They offer stability and reliability. Plus, many utility companies offer solid dividends that provide regular income. But before you invest, it’s important to understand what utility stocks are and how they work.
Let’s look at the benefits of having utility stocks in your portfolio and a handful of companies to consider investing in.
Why invest in utility stocks?
Utilities are a necessary part of people’s lives. They deliver electricity and gas to power municipalities and heat homes, charge electric vehicles, and keep the lights on so businesses can operate around the clock. All levels of government rely on utilities, from powering street lights to ensuring that government buildings can keep their doors open to the public. In sum, they’re an intrinsic part of everyone’s life. Daily life would be much different if we didn’t have common utility companies providing us with the things we need to live and stay comfortable.
The fact that utilities are part of the nation’s daily activity means they’re a good investment for those who want recession-proof stocks in their portfolio and high dividend yields. Utility companies are regional, which means that there are multiple companies to choose from for investment purposes.
It’s always wise to research the utility you’re interested in because utilities receive licenses from state governments. A poorly run utility, one that doesn’t provide good service to its customers, is at risk of losing its license to operate in the state. This can cause its stock value to plummet rapidly and result in a significant loss of value in an investor’s portfolio.
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The biggest utility stocks for investing
The following is a look at the biggest utility stocks in the U.S. and why they’re worth investing in. These are your more traditional utility companies and not newer, green energy companies.
Exelon
Exelon Corporation is based in Chicago and is the parent corporation for six subsidiaries: Baltimore Gas and Electric, Commonwealth Edison, Delmarva Power & Light, Atlantic City Electric, Potomac Electric Power Company and PECO Energy Company. Exelon separated its power generation and competitive energy businesses in 2022 and reported a GAAP net income of $0.47 per share in the first full quarter after the separation. The company is committing itself to connecting with the communities it serves and investing in clean energy generation.
It had annual revenue of $36.45 billion for the fiscal year 2021 and has gained 12.81% in overall value over the past five years. It pays an annual dividend yield of 3.60% and a quarterly dividend of $0.34.
Duke Energy
Duke Energy is based in Charlotte, N.C., and delivers electricity to Ohio, Kentucky, Indiana, North and South Carolina, Florida and Puerto Rico. It also owns Piedmont Natural Gas servicing North and South Carolina and Tennessee. It has over 7 million customers and a total service territory of 104,000 square miles. The company is investing in its infrastructure to provide reliable energy, prevent outages and generate clean energy from renewable sources.
Duke Energy had an annual revenue of $22.60 billion for the fiscal year 2021. Its stock pays an annual dividend yield of 4.04% and a quarterly dividend of $1.01. It’s gained almost 16% in value over the past five years.
NextEra Energy
NextEra Energy is the parent company of Florida Power & Light Company, also known as FPL Group Inc. The company delivers power to customers in Florida through its Florida Power & Light, Gulf Power, NextEra Energy Partners LP, NextEra Energy Resources and NextEra Energy Services divisions. The company is heavily invested in renewable energy and is currently the world’s largest producer of energy from solar and wind power. Over half of its energy production came from renewables in 2020. It regularly ranks on the Fortune 500 list.
NextEra Energy had annual revenue of $17.07 billion for the fiscal year 2021, down from $17.99 billion in 2020. Its stock pays an annual dividend yield of 2.06% and a quarterly dividend of $0.42. The company has gained almost 46% in value over the last five years.
Dominion Energy
Dominion Energy provides natural gas and electricity to over 5 million customers in states that include South Carolina, North Carolina, Idaho, Georgia, Ohio, Wyoming and Pennsylvania. The utility has been in trouble with federal regulators in the past but has made strides to improve its emissions output and improve the quality of the environment in areas affected by its pollution. The company is leading the way in clean energy generation and has a strategy to reach net-zero emissions for carbon and methane.
Dominion Energy reported revenue of $3.59 billion for the second quarter, an increase of $500 million from the same period a year ago. The utility has seen a steady decline in revenues for the past five years and has lost 7.50% in total value. Its stock pays an annual dividend yield of 3.76% and a quarterly dividend of $0.67.
Entergy
Entergy provides natural gas and electricity to 3 million customers in the states, including Louisiana, Arkansas, Texas and Mississippi. It’s a Fortune 500 company that operates multiple forms of power generation, including renewables and nuclear power plants. The utility is also investing in making it easier for the general public and commercial fleet operators to charge electric vehicles.
Entergy generated annual revenue of $11.74 billion for the fiscal year 2021, a 16% increase over 2020. Its stock has an annual dividend yield of 3.94% and a quarterly dividend of $1.01. The company has gained almost 24% in value over the past five years.
Sempra
Sempra is one of the largest utility holding companies in the U.S., with close to 40 million customers, and is a Fortune 500 company. It delivers natural gas and electricity through its subsidiaries, which include Southern California Gas Company, San Diego Gas and Electric, Oncor Electric Delivery Company in Texas and Sempra Infrastructure. Its divisions operate in California, Texas and Mexico. Sempra has positioned itself to transition to renewable energy sources and focuses on building net-zero energy systems.
Sempra had revenue of $12.86 billion in the fiscal year 2021, an increase from $11.37 billion at the end of the 2020 fiscal year. The company has gained 39.53% in value over the last five years. Its stock pays an annual dividend yield of 3.02% and a $1.15 quarterly dividend amount.
NiSource
NiSource is a natural gas and electricity supplier that services around 4 million natural gas customers and electricity customers across states, including Kentucky, Indiana, Ohio, Pennsylvania, Maryland and Virginia. Its energy generation activities include extracting natural gas for heating and cooking and using renewable resources for electricity. NiSource is focusing on upgrading its utility infrastructure by replacing older systems with newer, more efficient delivery systems and including renewable energy resources.
NiSource reported revenues of $1.18 billion for the second quarter of 2022, a 20% increase over revenues of $986 million for the same period a year ago. Its stock pays an annual dividend yield of 3.62% and a quarterly dividend of $0.24.
Constellation Energy
Constellation Energy Corp. was spun off from Exelon in 2022 and provides natural gas, electricity and power management services to residential and commercial customers. It’s the number one producer of zero-carbon energy in the U.S., delivers 10% of the total supply of carbon-free electricity across the U.S., and provides power to over 20 million homes. It also provides electricity to three-quarters of the Fortune 100 businesses. Constellation has set aggressive goals to generate 95% carbon-free electricity by 2030 and 100% carbon-free electricity by 2040.
Constellation Energy reported annual revenues of $19.64 billion for the fiscal year 2021, showing an increase of 11.62% from 2020. Its stock has an annual dividend yield of 0.68% and pays a quarterly dividend of $0.14. Its value has increased 38% since its inception in late February 2022.
Q.ai Infrastructure Spending Kit
For investors who want to avoid picking and choosing between utility stocks, consider investing in the Q.ai Infrastructure Spending Kit. Infrastructure spending can look like transportation projects and road repairs, expanded access to the internet and clean water, or more. Billions have already been allocated to priority projects.
The bottom line
When investing during a bear market, you want to find defensive stocks to limit your downside risk. Utilities fit the criteria. While you can’t expect tremendous long-term growth from these stocks, you can be confident in their stability. Add in healthy dividends, and your overall return will likely keep pace with, or exceed, inflation.
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