The industry benefits from good management, a history of solid dividends and expanding renewable power generation, all of which attract skittish investors in tough economic times.
Typically, those investors have a choice between consumer staples and utilities, but value is an issue now. The S&P Composite 1500 Consumer Staples index trades at approximately 21 times predicted 2023 sector earnings, putting consumer staples in a somewhat risky position if the market turns south this year.
Utility stocks seem like a safer bet, trading for roughly 19 times estimated earnings. The Vanguard Utilities Index Fund (ticker: VPU), an exchange-traded fund, or ETF, rose 17.4% in 2021 and gained 1.1% in 2022, a year when most stocks finished in the red. That said, here are seven top utility stocks that offer relative safety and pay dividends:
- AES Corp. (AES)
- American Water Works Co. Inc. (AWK)
- NextEra Energy Inc. (NEE)
- NRG Energy Inc. (NRG)
- Centrais Eletricas Brasileiras SA (EBR)
- Dominion Energy Inc. (D)
- Edison International (EIX)
AES Corp. (AES)
This Virginia-based company specializes in lithium-ion-based energy storage. Its share price has risen 24.2% over the past 12 months, compared with a loss of 7.3% for the S&P 500. Since energy storage figures to be a huge issue, as global governments and the utility sector tackle climate change, AES is well positioned for industry growth. The energy provider is thriving right now, with power distribution in 15 countries including the U.S., U.K., Chile, Brazil and Argentina. Its investment in a $4 billion Texas-based green hydrogen plant helps cement AES’ global reputation as a lithium storage leader, and its 2.6% dividend yield should boost investor interest in a year when income and growth potential are portfolio anchors.
Dividend yield: 2.6%
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American Water Works Co. Inc. (AWK)
Water often gets short shrift from investors and pundits alike, but that shouldn’t be the case, especially from a growth point of view. After all, only 1% of the world’s water is drinkable, and by some projections 66% of the globe will experience a freshwater shortage by 2025. In that context, this steady industrial water play, which services more than 14 million people in 24 U.S. states, tends to keep portfolios afloat in stormy economic times. AWK’s share price is up nearly 1% for the past 12 months. Its 1.8% dividend is solid, and in the fourth quarter the company’s operating earnings per share of 81 cents outperformed the general consensus EPS of 78 cents. Total Q4 revenue also surpassed estimates, signaling that AWK is a reliable earnings provider with a healthy dividend right now.
Dividend yield: 1.8%
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NextEra Energy Inc. (NEE)
This Juno Beach, Florida-based electricity provider’s most recent quarterly report showed a sales increase of 54%, and the company planned to spend up to $55 billion on green energy infrastructure in 2022. This year hasn’t started out ideally for NextEra, with its stock price down about 10% since mid-January. But NextEra’s net margin (at 19.8% through the first three weeks of February) is higher than 85% of its industry peers, and its return on equity, at 11.1%, surpasses 65% of its industry competitors. NEE also boasts a competitive dividend yield of 2.3%, making it a dependable option for safety- and income-minded investors.
Dividend yield: 2.3%
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NRG Energy Inc. (NRG)
Houston-based NRG Energy is among the best dividend payers on this list of utility stocks. NRG pays a 4.6% dividend yield, which outperforms its sector peers and the S&P 500’s yield of 1.7%. That dividend payout is highly reliable, as NRG has issued a year-to-year dividend hike three times since 2018. NRG’s stock did take a hit after its December 2022 announcement that it would purchase home security up-and-comer Vivint Smart Home for $12 per share, or $2.8 billion. Investors doubted NRG’s ability to cross-sell its utility products and services into Vivint’s expanding consumer base. The stock has rebounded of late, with a 5.4% year-to-date boost as of Feb. 22, as buyers refocus on NRG’s double-digit earnings and solid sales growth. Look for more of the same, with that great dividend payout, for the remainder of 2023.
Dividend yield: 4.6%
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Centrais Eletricas Brasileiras SA (EBR)
This Rio de Janeiro-based electricity services producer’s dividend yield clocks in at 2.2%. The company specializes in hydroelectric power, with 48 plants up and running in Brazil. Given its proximity to the Amazon River and its huge tributary waterway system, EBR has a home-field advantage in the hydroelectric power sector, giving it a path to regional dominance in electric power. With a bullish consensus analyst outlook that gives its stock price about 50% upside potential, EBR stock looks as if it has plenty of room to run this year.
Dividend yield: 2.2%
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Dominion Energy Inc. (D)
With a dividend yield of 4.6%, Virginia-based Dominion Energy tops this utility stock dividend list alongside NRG. Rumors had circulated among traders and analysts that Dominion would cut its dividend on its fourth-quarter earnings call, but the company stated that it wouldn’t. That’s a vote of confidence for the company and for its share price, which has fallen to a decade-long low. On the upside, full-year operating earnings were up 6.5% in 2022 compared with 2021, and the company is coming out of $3.1 billion (pretax) in non-recurring losses for 2022 in areas such as asset sales and storm damage, issues that aren’t likely to reoccur anytime soon.
Dividend yield: 4.6%
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Edison International (EIX)
Yielding a healthy 4.5%, Edison is another solid option for utility investors in 2023. The company’s share price offers some stability for anxious investors, with the stock up 15.2% for the past year and 4.1% on a year-to-date basis as of Feb. 22, besting many competitors. The company has a big energy footprint on the West Coast, with Southern California Edison alone servicing 15 million customers in a 50,000-square-mile area. Its sheer size helps explain why EIX is a consensus “buy” among industry analysts in early 2023. Additionally, 19-straight years of dividend boosts may be enough to get investors off the fence and into one of the healthier utility-company stocks in the marketplace.
Dividend yield: 4.5%
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