When investors think of lower-risk investments, the best utility stocks typically spring to mind for many of us. That's because electricity is a modern necessity right alongside food and water. Consumers will cut back on just about every discretionary category before they stop heating their homes or turning on lights in the evening.
It also helps that most utilities are highly regulated by state or federal policymakers. This makes it challenging for competitors to pop up and offer significantly lower rates that would disrupt the state of play. In fact, the U.S. is in many ways a patchwork of regional monopolies that just happen to be publicly traded!
For investors, it's hard to know what to expect in 2023, especially following the disruptions of last year caused by the war in Ukraine and a series of historic interest rate increases that roiled credit markets. Plus, with continued talk of recession risks in the months ahead, it's hard to imagine anything could be truly safe on Wall Street.
However, utility stocks often are more stable than companies in other sectors, and have reliable revenue streams that often support generous and sustainable dividends over the long term. So if you're looking for income or looking for a bit less uncertainty, here are nine of the best utility stocks to buy now.
Data as of Feb. 2. Dividend yields are calculated by annualizing the most recent payout and dividing by the share price.
- Market value: $17.7 billion
- Dividend yield: 2.4%
Diversified utility stock AES (AES, $26.52) is based in Virginia, but may be familiar to folks in the Midwest through its AES Ohio and AES Indiana operations. This utility stock is even more geographically diverse than that, though, with worldwide operations that span South and Central America, the Caribbean, Europe and Asia. All told, it operates a power generation portfolio of almost 32,000 megawatts – enough energy to power as many as 28 million homes.
And AES is growing aggressively on top of these current operations. Just a few months ago, the company announced a partnership with Air Products and Chemicals (APD) to build, own and operate a $4 billion hydrogen production facility in Texas. With plans to begin operations by 2027, the plant will "serve a growing demand for zero-carbon intensity fuels for the mobility market as well as other industrial markets." The plant will service third-party companies, but, more importantly, will literally fuel AES Corporation's move to become carbon-neutral as an electricity provider.
AES is also one of the best dividend stocks. The company has increased its dividend for 10 consecutive years, from just 4 cents per share in 2012 to a projected 66 cents per share in 2023. And on top of that payout, shares have risen about 20% in the last 12 months, showing the growth potential of one of Wall Street's best utility stocks even amid a challenging market environment.
Brookfield Renewable Partners
- Market value: $18.2 billion
- Dividend yield: 4.5%
Brookfield Renewable Partners (BEP, $28.57) has a portfolio of renewable power generation facilities worldwide spanning hydroelectric, wind and solar. It's also a global organization, with operations in North America, Colombia, Brazil, Europe, India and China.
It's important to understand that Brookfield is not a traditional utility provider like your local power company. Rather, it generates the electricity, but then sells the bulk of the power it generates under long-term agreements with third-party utilities or passes the electricity on directly to large corporate buyers. Those multi-year agreements with deep-pocketed customers help provide Brookfield with very stable cash flow, and generous dividends as a result.
What's more, its stable of clean energy and transition power generation like nuclear energy make it a go-to source for corporate customers looking to go green. This is also helpful for other utility companies that find it cheaper in the short-term to buy from BEP rather than build their own wind or solar farms.
One word of warning: Brookfield is structured as a partnership, meaning shareholders are actually taxed on the profits passed through to them via distributions. The yield is pretty good at BEP, but just prepared for a more complicated K-1 tax form and a potentially higher taxation rate.
- Market value: $33.8 billion
- Dividend yield: 3.4%
If you're looking for the best utility stocks with a rich history of dividends, then look no further than Consolidated Edison (ED, $95.16). This is a dividend stock that boasts an enviable payment history that dates back to the earliest days of stock markets in the U.S., when it was founded in 1823 as the New York Gas Light Company.
That's not just old news, either. In January, ConEd recorded its 49th consecutive annual increase for stockholders -- the longest period of consecutive annual dividend increases of any utility in the S&P 500 Index.
As for the business that feeds that income stream, Consolidated Edison offers electric services to approximately 3.5 million customers in New York City and the surrounding region, as well as natural gas service to approximately 1.1 million more customers in the area.
The metro region of NYC is still in very high demand, and like many of the megacities in the world has a resilient economy that is sure to survive the short-term ups and downs of the national economy. That will likely mean many more years of dividends and dividend growth for one of the Street's best utility stocks.
- Market value: $27.9 billion
- Dividend yield: 0.7%
On one hand, Constellation Energy (CEG, $85.33) has one of the most meager dividend yields of all the utility stocks on this list. But on the other, shares have delivered a 60% return over the last 12 months, which is proof that CEG has something to offer.
CEG was listed separately in 2022, after a spinoff from utility giant Exelon (EXC). It is a true utility stock, generating and selling electricity. It boasts 32,400 megawatts of capacity consisting of nuclear, wind, solar, natural gas and hydroelectric assets.
It's always challenging to figure out whether a "new" utility stock like this is a worthy investment. But CEG became a standalone company at a great time, with demand and pricing on the upswing alongside financial independence and streamlined operations following its split from Exelon.
Time will tell whether CEG has staying power, but based on performance, so far this large utility is certainly worth a look.
- Market value: $51.7 billion
- Dividend yield: 4.2%
Dominion Energy (D, $62.00) is the largest of the utility stocks on this list and one of the five biggest electricity providers listed on U.S. markets. The company is a powerhouse of the sector, with a portfolio of assets that include roughly 30 gigawatts of electric generating capacity, mostly in Virginia and North Carolina.
Many investors are drawn to big utility stocks because they operate pretty much as legal monopolies in the regions they serve. That means a highly reliable business with a stable revenue model. And when you have the scale and balance sheet of Dominion on top of that, it makes for a nearly bulletproof business model.
What's more, the deep pockets of this company are reinforced by a recent restructuring across 2020 to sell substantially all of its gas transmission and storage operations, and to focus on the electricity business.
It's already redeploying that capital to adapt to long-term sustainability concerns in the utility sector. For instance, Dominion has joined into the Southeast Hydrogen Hub coalition. Additionally, D is among just 33 organizations that have been invited to apply for part of $8 billion in federal matching grants to establish regional hydrogen hubs nationwide.
This utility stock isn't what it was in years past after carving out about $10 billion of its business. But for investors who like where the stock is headed, it could be the perfect time to bet on this sector leader.
- Market value: $3.9 billion
- Dividend yield: N/A
If you're looking for a low-risk, income-oriented utility stock then Fluence Energy (FLNC, $22.58) isn't exactly the right choice. But if you're looking for an investment in the future of renewables and a smart energy grid, then consider this growth-oriented company as a unique way to play the utility sector.
FLNC offers energy storage products and services, along with AI-enabled digital tools to improve grid efficiency and distribution. Its offerings include Gridstack technology that provides grid-scale energy storage products, Sunstack – which controls for optimizing solar capture and delivery of solar energy – and Edgestack solutions to balance out a facility's energy load profile.
Though an independently traded company, Fluence was born out of the work of German industrial automation giant Siemens (SIEGY) and utility giant AES (AES) – the first name featured on this list of best utility stocks. This kind of close relationship with the industry and end-users should give investors a bit of confidence that this is not a "build it and they will come" scenario, and that FLNC knows what its customers want.
Furthermore, it should go without saying that alternative energy and related "smart grid" storage is a must-have in the years ahead. That's because of both the long-term risks of climate change, as well as the short-term disruptions to traditional fossil fuel markets thanks to geopolitical challenges with Russia.
You won't get a dividend, as Fluence is operating near breakeven at present as it continues to invest heavily in its plans for the future. But seeing as there aren't a ton of growth stocks in the utility sector, this one certainly stands out as one of the more dynamic names in the space.
New Fortress Energy
- Market value: $8.6 billion
- Dividend yield: 8.4%
Integrated gas power company New Fortress Energy (NFE, $41.05) is a unique utility stock in that it operates in two distinct segments: an energy infrastructure business and a shipping and logistics arm. Its terminals and infrastructure segment engages in the natural gas procurement, liquefaction and natural gas-fired power generation. Its ships segment, on the other hand, offers floating storage and regasification services to third-party customers.
In other words, NFE uses its know-how to not just operate its own energy infrastructure, but also to provide logistics support to others in the natural gas industry.
This unique operational structure has allowed NFE to benefit handsomely from the recent disruptions and demand spikes in global natural gas markets driven by the exclusion of Russian fossil fuels in various jurisdictions around the world. As proof of the global nature of New Fortress, it has a regasification facility and marine LNG storage facilities in Jamaica, Puerto Rico, Brazil and Mexico.
NFE stock is up more than 80% in the last 12 months. And thanks to windfall dividends over the last year, the company has a yield that is roughly five times that of the S&P 500.
- Market value: $4.5 billion
- Dividend yield: 3.2%
ONE Gas (OGS, $83.90) is a regulated natural gas distribution utility firm. It is the parent company behind Oklahoma Natural Gas, Kansas Gas Service and Texas Gas Service. These entities provide natural gas distribution services that span 2.2 million customers in three states, across about 41,600 miles of distribution mains and 2,400 miles of transmission pipelines.
Founded more than a century ago in Tulsa, ONE Gas is a great example of the kind of slow-and-steady business that investors look for in the utility sector. It has little regional competition, and strong baseline demand from providing fuel to businesses and consumers.
OGS just bumped its quarterly per-share dividend payout to 65 cents from 62 cents. This makes distributions more than double the 30 cents per share it was paying at the end of 2015. This long-term dividend growth is another hallmark of the best utility stocks to buy.
Shares are up by around 8% over the last year or so, which is a nice sweetener on top of the reliable dividend.
- Market value: $2.8 billion
- Dividend yield: 2.5%
Otter Tail (OTTR, $66.14) is one of the smaller utility stocks on this list. The company has a relatively modest electricity generation business that serves some 135,000 connections at residential, commercial and industrial customers in the Minnesota region.
Interestingly enough, however, OTTR also has a modest manufacturing segment engaged in machining, metal parts stamping, and production of plastic containers, among other services. The whole company posted about $1.2 million in revenues last year, with the electric utility arm of the company representing about 40% of that.
It's admittedly not intuitive to find an industrial company mashed up with a regional utility, but this hybrid model has served shareholders very well. OTTR stock has remained flat over the last 12 months even as the rest of Wall Street has been quite volatile. On top of that, the small-cap stock pays a dividend that's significantly higher than you'll find in the S&P 500 – and higher than some of the other picks on this list of the best utility stocks, too.
Jeff Reeves writes about equity markets and exchange-traded funds for Kiplinger. A veteran journalist with extensive capital markets experience, Jeff has written about Wall Street and investing since 2008. His work has appeared in numerous respected finance outlets, including CNBC, the Fox Business Network, the Wall Street Journal digital network, USA Today and CNN Money.
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