11 Top-Rated Utility Stocks to Buy Now
Utility stocks rarely thrill, but they're typically a source of generous income and more even-keeled returns. Consider these 11 picks.
While perhaps not as thrilling as the tech startups that make next-generation consumer electronics or fancy cloud computing tools, utility stocks still play a very important role in any well-rounded investment portfolio.
After all, the most dynamic technologies aren't worth anything if there isn't electricity to power them. In 2020, power is nearly as crucial as food and shelter to consumers – and in a digital economy, it's even more important for businesses.
That adds up to a strong baseline of reliable revenue, regardless of the ups and downs of the unemployment rate or consumer spending. And as a result, many low-risk investors find themselves drawn to utility stocks for the stability as well as the dividends typically paid out by this sector.
If you're interested in utilities for any of these reasons, here are 11 utility stocks that are grabbing the attention of Wall Street analysts recently.
Data is as of Sept. 7 unless otherwise noted. Dividend yields are calculated by annualizing the most recent payout and dividing by the share price.
- Market value: $11.7 billion
- Dividend yield: 3.3%
One of the largest utility stocks on this list as measured by market value, AES Corp. (AES, $17.57) is also one of the most unconventional names in the space.
Despite being located in Virginia, this company operates as a diversified power generation and utility company across South America, Asia and Europe, as well as limited regions of the U.S. Across these disparate geographies, AES also uses a wide range of fuels and technologies to generate electricity, including natural gas, coal, oil, hydroelectric, solar, wind and biomass. It all adds up to an incredibly diversified utility in an already low-risk sector of the stock market.
AES is one of the best-rated utility stocks to buy at the moment, with five Strong Buys, four Buys and just one Hold. The bull camp includes UBS analyst Daniel Ford (Buy), who raised his price target in August to $20 per share "to reflect a $2/share increase in the value for AES' MCAC (Mexico, Caribbean and Central America) and South America businesses."
Brookfield Renewable Corporation
- Market value: $12.3 billion
- Dividend yield: 3.4%
The new kid on the block, Brookfield Renewable Corporation (BEPC, $50.89), is just another spin on an already great company.
In July, Brookfield Renewable Partners LP (BEP) executed a "unit split" that gave current shareholders shares in BEPC – a publicly listed Canadian corporation that gives investors another way to invest in Brookfield's renewable assets. One of the biggest differences is tax treatment, which BEPC explains here.
This dedicated green energy utility owns and operates renewable power assets across the world that include hydroelectric, wind and solar plants. Specifically, it boasts 19,300 MW of capacity and 5,301 generating facilities in North America, South America, Europe and Asia. Hydroelectric is the largest part of its portfolio at about 64%.
There's little in the way of analyst coverage early on, but the pros at Wells Fargo have weighed in with an Overweight rating (Buy) for this utility stock in August.
- Market value: $19.8 billion
- Dividend yield: 4.9%
Edison International (EIX, $52.26) generates electricity through hydroelectric, diesel, natural gas, nuclear and photovoltaic sources to serve roughly 5 million customers connected by nearly 100,000 total miles of overhead and underground cable.
This utility's Southern California Edison arm has been in the news lately for an ambitious, $437 million effort to build roughly 40,000 of electric vehicle chargers, which the state utility regulator labeled as the nation's largest ever utility program to expand this charging infrastructure.
There's admittedly not much growth in the traditional utility biz, but Edison has proven it can think outside the box.
EIX has received Buy recommendations from the likes of KeyBanc and Seaport Global in recent months. And in late July, UBS reiterated its Buy rating and $75 price target after EIX raised the low end of its earnings guidance, which analyst Daniel Ford chalked up to "an incremental quarter of experience in the COVID-19 environment and timing issues."
- Market value: $4.4 billion
- Dividend yield: 3.0%
Headquartered in Boise, Idaho, Idacorp (IDA, $88.02) is a midsized electric utility stock that serves the Northwestern U.S. though facilities in Idaho, Wyoming, Nevada and Oregon. The utility stock operates hydropower generating plants as well as natural gas and coal operations that help provide power to nearly 600,000 customers.
IDA shares are off 18% year-to-date, but that has helped elevate its yield to 3%, and analysts remain convinced that it has considerable upside. IDA, which doesn't get a ton of analyst coverage, has received Buy ratings over the past few months from Sidoti, BofA Securities and Siebert Williams Shank.
The utility helped stem bleeding in its stock with a strong second quarter that included a 13% jump in profits to $1.19 per share. It also reaffirmed its previous 2020 earnings guidance, which calls for profits of $4.45 to $4.65 per share.
- Market value: $1.1 billion
- Dividend yield: 1.6%
When most investors think of utility stocks, they likely think of the larger power generation providers. But don't forget about water utilities.
Middlesex Water (MSEX, $63.90) is a wastewater utility that collects, treats, and distributes water to residential, commercial and industrial customers in an area that includes New Jersey, Delaware and Pennsylvania. Needless to say, if you think utilities are attractive investments because electricity is a must-have that Americans simply cannot live without, you really should find the business of a water company appealing.
This low-risk company has strong baseline demand from its customers, which has helped it set a new all-time high this summer even as companies in other sectors have struggled in 2020.
"Middlesex Water Company's 2Q20 results were impressive by any metric," writes Janney analyst Michael Gaugler (Buy). "Increased customer demand and new customers drove top line performance, despite COVID-19 related impacts across the operational service territories. Given third quarter weather patterns have been extremely favorable, we expect strong results for this reporting period."
- Market value: $8.1 billion
- Dividend yield: 3.6%
Midsized utility NRG Energy (NRG, $33.38) isn't among the largest publicly traded stocks in the space, but it's a still-sizable company that's among the most-loved utility stocks.
Serving nearly 4 million customers in a host of regions across the U.S., from Massachusetts to Illinois to Texas, NRG generates electricity using natural gas, coal, oil, solar and nuclear power facilities. While many segments of the economy have seen volatility amid coronavirus uncertainty, the straightforward and reliable operations of NRG give investors a lot of stability to fall back on.
After a quick recovery to share prices from their spring lows, with a few analyst upgrades to Buy coming soon after, NRG has become mostly rangebound once more in 2020. But that's OK. Much of the Street still likes what's in store for NRG Energy, including UBS, which reiterated its Buy rating after the company announced it would acquire Centrica's Direct Energy U.S. energy retail business for $3.6 billion in cash.
- Market value: $1.6 billion
- Dividend yield: 3.9%
Minnesota-based Otter Tail's (OTTR, $38.19) primary business is low-cost electric power generation operations, but it also boasts a manufacturing arm that specializes in metal fabrication and PVC pipes.
It's admittedly a strange mash-up. But for investors looking to add a greater level of diversification, this structure might actually be appealing.
Less than a third of total revenue and less than 15% of total profits are derived from this manufacturing, however, so there is also little risk of diluting the core investment proposition of a utility stock here; for its power operations, OTTR operates in Minnesota and the Dakotas, serving almost 150,000 customers.
Sidoti analyst Brian Russo upgraded Otter Tail from Neutral to Buy in August, and raised his price target from $41 per share to $45, calling the stock's valuation "attractive."
- Market value: $195.3 million
- Dividend yield: 2.9%
Natural gas utility RGC Resources (RGCO, $23.96) is an energy services company with residential, commercial and industrial customers, mostly in the state of Virginia, through its network of nearly 1,200 miles of distribution pipelines. It also operates a liquefied natural gas storage facility and metering stations.
Though not a household name, RGC is well-established, nearing 110 years of operation.
The dividend of 17.5 cents quarterly is up from 16.5 cents at this time last year, hinting that this long-standing utility stock still has a strong commitment to future dividend increases. Indeed, RGC's dividend-growth streak extends back to 2004.
Sunnova Energy International
- Market value: $1.8 billion
- Dividend yield: N/A
While in a sleepy sector, Sunnova Energy International (NOVA, $21.44) is anything but a sleepy stock. In fact, it looks nothing like other utility stocks of late. While it boasts no dividend, NOVA shares have nearly doubled in 2020!
Sunnova offers residential solar energy services, currently serving just 80,000 customers but growing very fast. It's not a traditional utility in the sense that there's a big power plant serving folks via a large-scale electric transmission system. Nevertheless, Sunnova has a similar dynamic in that it is providing necessary energy services.
The difference, of course, is that folks going green – or simply looking to get off the grid for security or to save a few bucks in the long-term – are eager to make the switch from old-school power firms these days.
NOVA was upgraded by both Credit Suisse and BofA Securities this summer. The latter put a $25 price target on shares. The former was looking for prices around $21.50, but added that there was "additional potential upside from the company's ability to upsell roofing financing, battery storage growth, grid services, and other products/services."
- Market value: $7.1 billion
- Dividend yield: 3.9%
UGI Corp. (UGI, $34.17) distributes energy products and related services across a few distinct business lines.
Consumers might recognize UGI from its recently acquired AmeriGas Propane business, which covers 1.6 million customers through 1,800 distribution centers and offers related appliances, heating and services. But UGI also has a robust liquefied petroleum gasses arm, including natural gas distribution across 44 counties in Pennsylvania, and an electric utility business that services roughly 60,000 more customers. To top it off, it also offers heating, ventilation, air conditioning, refrigeration, mechanical, and electrical contracting services.
Founded in 1882, this Pennsylvania-centered organization is diversified across various utility-related business lines, lending a measure of additional stability to an already low-risk business model shared by stocks in this sector. Better still, UGI has been improving its dividend since 1992, including a 48% bump in the payout since 2015.
- Market value: $8.9 billion
- Dividend yield: 3.0%
Texas-based Vistra (VST, $18.23) offers electricity and natural gas services to residential, commercial and industrial locations across 20 states, serving a total of nearly 5 million customers in the United States. It has a production capacity of almost 40,000 megawatts across a wide portfolio of natural gas, nuclear, coal and solar facilities.
VST has been inundated with Buy ratings over the past year, including from RBC Capital and UBS most recently. Analysts who have sounded off during the most recent quarter see shares bouncing back to $28.75 per share on average – 58% higher from current levels.
"Outperform-rated non-regulated power producer and retailer VST reported strong 2Q EBITDA," Credit Suisse wrote in late August, "and we continue to see the stock as very undervalued given a likely tightening of Texas reserve margins and higher power price volatility in the coming years."
This is a new company that only started trading on the New York Stock Exchange in 2017 and began paying a dividend in 2019. However, its original 12.5-cent-per-share payout has since been upped to 13.5 cents, showing that VST also has the income potential you'd expect from utility stocks.