Investing in utility stocks often results in capital appreciation that is slow and steady but consistent over time.
Utilities play a significant part in the life of the United States since they provide fundamental services to a diverse variety of residential and commercial businesses.
In order to cater to the various requirements of commercial and residential customers, these services include the delivery of water, natural gas, and electricity.
The stock market is home to some of the largest and safest equity investments possible, many of which can be found in firms that are required to comply with stringent laws.
Investing in utility stocks often has the benefit of providing a steady source of income through dividend payments in addition to a modest but consistent increase in value over time.
The purpose of the following compilation is to provide the most noteworthy utility stocks, a total of eight in number, so as to make it easier for one to select the best possible investments to make in the utility sector for one’s portfolio.
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Nothing written here is financial advice.
We don’t advise holding individual stocks. ETFs and funds are a better option.
This article merely looks at some of the better options.
Table of Contents
What are Utility Stocks
Utility stocks include companies that supply residential and commercial enterprises with critical services such as natural gas, electricity, water supply, and sewage.
Utilities companies also provide the infrastructure necessary to deliver these services.
The sector of utilities has defensive qualities since it has a tendency to be fairly resistant to economic cycles due to the continual demand for its services by consumers.
This is one of the reasons why defensive characteristics are important in the utilities sector.
Because of the influence of government regulation and the presence of limited regional competition, the stock performance of utility companies is characterized by relative stability and predictability.
This is because there is less regional rivalry.
As a general rule, dividend payments are made available to shareholders of utility businesses, which is one reason why many individuals who invest do so with the purpose of generating income from their holdings in the stock market.
Advantages of Investing in Utility Stocks
Regular dividend payments are a major perk for utility companies. When trying to determine the reliability of dividend payments from a company, it is wise to look back at past records.
Adding utility stocks to a portfolio might help spread out investment risk.
A diversified portfolio is one that has investments from a wide variety of industries, company sizes, and geographic regions.
By capitalizing on the aggregate results of numerous assets, a diversified portfolio can reduce exposure to risk.
Having a diverse portfolio can help mitigate the negative effects of any one company’s or industry’s poor performance.
Utilities, by virtue of their fundamental role in society, can function as a ballast in otherwise turbulent markets.
The utilities industry outperformed the market as a whole in the years leading up to the 2001 and 2007-2009 recessions.
In 2022, utilities outperformed expectations despite widespread talk of an impending economic downturn.
Risks of Investing in Utility Stocks
The energy sector stands to benefit greatly from the shift toward clean energy, but well-established companies will face challenges as they attempt to investigate emerging technologies.
Businesses, like everyone else, will have to adjust to new regulations. Some businesses are likely to struggle with making the change to more environmentally friendly procedures.
Both for companies that have and have not made significant transitions to renewable energy, investors are giving environmental concerns a higher priority.
More and more organizations are evaluating their climate-related risks and influence using environmental, social, and governance (ESG) standards.
While certain sectors may be able to sidestep these issues with relative ease, utility providers may be subject to more scrutiny.
Utility stocks are known for their dependability and predictability, but utility equities rarely provide investors with opportunities for considerable gain.
Utilities, on the other hand, provide a stable income, which is why they are attractive to some types of investors.
The widespread adoption of renewable power sources and electric vehicles has led many experts to predict rapid expansion for the utility sector in the years ahead.
What are the Best Utility Stocks to Buy
AES
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.
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.
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.
ONE Gas
With a current stock price of $83.90, ONE Gas (OGS) is a publicly traded business engaged in the regulated natural gas distribution utility industry.
In addition to being the parent company for Oklahoma Natural Gas and Kansas Gas Service, the aforementioned company also oversees Texas Gas Service.
Across three states, these companies serve a population of about 2.2 million with natural gas delivery. About 41,600 miles of distribution mains and 2,400 miles of transmission pipes make up their distribution network.
Established in Tulsa more than a century ago, ONE Gas is a prime example of the kind of reliable and long-lasting business that attracts investors to the utility sector.
Because it supplies fuel to both businesses and consumers, the industry has strong underlying demand and low levels of regional competition.
The quarterly dividend paid out by OGS has gone up from 62 cents per share to 65 cents. This means dividends will be more than 60 cents a share annually, which is double the dividends paid at the end of 2015.
Dividend growth that is sustainable over the long term is a hallmark of the best utility businesses as an investment.
The income is already reliable, and the about 8% gain in value of the shares over the past year is icing on the cake.
Brookfield Renewable Partners
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.
New Fortress Energy
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 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.
Consolidated Edison
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.
Fluence Energy
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 which 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.
Constellation Energy
On one hand, Constellation Energy (CEG, $85.33) has one of the most meagre 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.
Dominion Energy
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 the Southeast Hydrogen Hub coalition.
Additionally, Dominion 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.
Final Thoughts
Utility equities continue to hold a strong allure for investors in the constantly changing world of private banking and investment funds.
For a considerable amount of time, these stocks have been hailed as the best defensive stocks because they provide steady dividend growth and safety, much like consumer staples stocks.
Furthermore, utility companies are even more appealing in the current economic environment because they are frequently seen as a hedge against riskier assets like consumer discretionary stocks.
Because of this, investing in utility stocks and utility ETFs is worthwhile for a well-rounded portfolio since they offer a stable income stream during difficult times in addition to acting as a buffer against market volatility.
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Adam is an internationally recognised author on financial matters, with over 760.2 million answer views on Quora.com, a widely sold book on Amazon, and a contributor on Forbes.
