Utilities stocks typically offer juicy dividends that appeal to income investors, especially when markets get choppy. Companies in the utilities sector generate and distribute electricity, natural gas, water and wastewater services.
No two economists or analysts on Wall Street fully agree on what might be next for share prices in this year’s fourth quarter or 2022. Therefore, it’s important to diversify a portfolio with picks like utilities stocks, which can weather potentially increased volatility.
So far in 2021, the S&P 500 index has returned around 17.2% while the S&P 500 Utilities Sector index underperformed the market. Increased inflation and concerns over higher interest rates have put additional pressure on many utilities.
Meanwhile, as investors pay more attention to sustainability issues, the demand for green growth has been increasing steeply. Thus, the sector is under the influence of strong trends for clean energy, renewable resources and decarbonization. Utilities companies that can transform their operations along these lines are likely to see higher growth rates in the long run.
So, with that information, here are seven robust utilities stocks for investors seeking high yields and diversification:
- Allete (NYSE:ALE)
- Exelon (NASDAQ:EXC)
- iShares Global Utilities ETF (NYSEARCA:JXI)
- Northwest Natural Holding (NYSE:NWN)
- Pinnacle West Capital (NYSE:PNW)
- South Jersey Industries (NYSE:SJI)
- Spire (NYSE:SR)
Utilities Stocks: Allete (ALE)
52-Week Range: $50.75 – $73.10
Dividend Yield: 4.2%
Duluth, Minnesota-based Allete operates several utilities services, including Minnesota Power as well as Superior Water, Light and Power of Wisconsin. It also owns Allete Clean Energy and BNI Energy, and it has an ownership stake in American Transmission Company.
Allete reported Q2 financials in early August. Operating revenue came in at $335.6 million, up 38% year-over-year (YOY). Net income of $27.9 million translated into earnings per share (EPS) of 53 cents compared to $20.1 million and 39 cents in the prior-year quarter. Cash and equivalents ended the quarter at $62.5 million.
On the results, CEO Bethany Owen remarked, “…we anticipate continued strength through the remainder of the year, as evidenced by the positive steel industry outlook. Our other businesses generally performed within expectations for the quarter.”
Management pointed out that 2021 would be a transitional period for the company. They expect it to see a higher growth rate in 2022 and beyond. The EPS for this year is expected in the range of $3 to $3.30.
After seeing a record high of $73.10 after the release of Q2 metrics, ALE shares have lost steam and now trade around $59. Year-to-date (YTD) the stock is down 5.1%.
The company’s trailing price-to-sales (P/S) and price-to-book (P/B) ratios stand at 2.41x and 1.34x, respectively. Given its recent decline and high dividend yield, ALE stock could be gaining traction in Q4.
Source: zhao jiankang / Shutterstock.com
52-Week Range: $38.35 – $50.99
Dividend Yield: 3.16%
Chicago, Illinois-based Exelon is a Fortune 100 utilities group and one of the largest operators in electricity and natural gas in the U.S. and Canada. It is involved in every stage of the energy business, including power generation, sales, transmission and delivery.
According to Q2 financials released Aug. 3, revenue came in at $7.92 billion, up 8% YOY. Non-GAAP operating earnings of $869 million showed an increase of 62% compared to the prior-year quarter. Adjusted earnings increased to 89 cents per share from the previous year’s 55 cents per share. Cash and equivalents at the quarter end totaled $1.6 billion.
CEO Christopher Crane remarked, “Looking ahead, we continue to execute our plan to separate our utility and generation businesses into two financially strong, independent companies, and we remain on track to close in the first quarter of 2022.”
In recent days, management announced the separation of its utility business, Exelon, and its competitive energy business, Constellation. Analysts expect this move to bring both companies financial and strategic independence as well as more focus on core strategies.
So far in 2021, EXC stock has returned more than 13%. It hit a 52-week high in mid-September and currently hovers around $48. The shares trade at 15.38 times forward earnings and 1.36 times sales. Potential investors could find value at EXC stock’s current levels.
Utilities Stocks: iShares Global Utilities ETF (JXI)
52-Week Range: $55.52 – $64.68
Dividend Yield: 2.99%
Expense Ratio: 0.43% per year
Next on our list is the iShares Global Utilities exchange-traded fund (ETF). It provides exposure to global equities of companies that supply electricity, gas and water. The fund tracks the S&P Global 1200 Utilities (Sector) Capped Index.
JXI has 65 holdings, 60.9% of which come from the U.S. The remainder are largely from the U.K., Spain, Italy and France. The top ten names account for 44% of the fund.
In terms of portfolio composition, electric utilities make up 59.9% of the fund, multi-utilities are 30.2% and gas utilities are 5.1%. The remaining sectors — water utilities, independent power producers and energy traders — make up less than 5%.
Net assets have reached $149.5 million since the fund’s inception in September 2006.
JXI is down about 2% YTD and is flat YOY. The fund’s trailing price-to-earnings (P/E) and P/B ratios stand at 21.67x and 2.05x, respectively. Given the global diversity of holdings and current dividend yield of about 3%, JXI could offer reliable income in uncertain times.
Northwest Natural Holding (NWN)
52-Week Range: $41.71 – $56.75
Dividend Yield: 4.1%
Portland, Oregon-based Northwest Natural Holding owns NW Natural and NW Natural Water, among other businesses.
On Aug. 5, the company reported Q2 metrics. Revenue grew by 10.3% YOY to $148.9 million. Net loss narrowed by $4.4 million and came in at a loss of $700,000, or 2 cents per share, compared to a net loss of $5.1 million, or 17 cents per share, in the prior-year quarter. NW Natural Holdings held cash of $20.1 million as of June 30.
On the metrics, CEO David H. Anderson said, “Our mission is to continue providing essential energy and water services to customers safely and reliably, striving to put renewables on our natural gas pipeline, and investing in water and wastewater utilities.”
The utility also reaffirmed 2021 earnings guidance in the range of $2.40 to $2.60 per share.
NWN stock is currently trading around $47 per share and has returned 1% YTD. The shares trade at 17.89 times consensus forward earnings. Trailing P/S and P/B ratios stand at 1.76x and 1.57x, respectively. A potential decline toward $45 would increase the margin of safety for investors.
Utilities Stocks: Pinnacle West Capital (PNW)
52-Week Range: $65.94 – $91.88
Dividend Yield: 4.99%
Phoenix, Arizona-based energy holding company Pinnacle West Capital provides retail and wholesale electricity services through its subsidiaries. The company has approximately 6,300 megawatts of generating capacity and more than 6,000 employees working in Arizona and New Mexico.
Pinnacle West issued Q2 financial results in early August. Operating revenue was $1 billion, up 7.6% YOY. Consolidated net income of $215.7 million translated into $1.91 per diluted share compared to Q2 2020’s net income of $193.6 million and $1.71 per share.
Following the announcement, CEO Jeff Guldner commented, “Combined with robust growth and an economy that is bouncing back from the worst of the COVID-19 pandemic, more customers used more energy this past quarter to cool their businesses and homes than a year ago.”
Looking forward, the company expects retail customer growth of 1.5% to 2.5% between 2021 and 2023. In addition to improving its utilities infrastructure, management is focusing on expanding clean and renewable energy facilities.
PNW stock currently trades around $67 and is down 16.5% so far this year. The shares exchange hands at 14.14 times forward earnings and 2.23 times trailing sales. The company’s P/B ratio currently stands at 1.43x.
South Jersey Industries (SJI)
52-Week Range: $18.77 – $29.24
Dividend Yield: 5.37%
Folsom, New Jersey-based South Jersey Industries provides energy services through three main subsidiaries: SJI Utilities, South Jersey Energy Solutions and SJI Midstream.
Management reported second-quarter financial results in August. Consolidated revenues soared 20% YOY to $311.8 million. Adjusted income was $1.99 million, or 2 cents per diluted share, compared to a loss of $863,000, or 1 cent per diluted share, a year ago. Cash and equivalents ended Q2 with $87.93 million compared to $18.67 million in the prior-year period.
On the metrics, CEO Mike Renna said, “Our utility and non-utility businesses performed very well in the first half of the year and we remain on track to achieve our financial goals for 2021 … We remain committed to delivering safe, reliable, affordable clean energy to our more than 700,000 customers and achieving our sustainability goals through critical and substantial energy infrastructure investments.”
Management targets an EPS growth of 5% to 8% and an annual rate base growth of approximately 10% over the long term. SJI stock currently trades around $22.50 and has returned 3.88% YTD. The price also supports a generous dividend yield of nearly 5.4%.
SJI stock has a consensus forward P/E ratio of 12.8x, while P/S and P/B ratios stand at 1.34x and 1.33x respectively. Given the modest valuation and growth potential, interested investors should keep the stock on their radar.
Utilities Stocks: Spire (SR)
Source: OlegRi / Shutterstock
52-Week Range: $53.66 – $77.95
Dividend Yield: 4.08%
St Louis, Missouri-based Spire is one of the largest natural gas companies stateside. The utility group serves 1.7 million homes and businesses through its natural gas-related businesses, including Spire Marketing, Spire STL Pipeline and Spire Storage.
Management issued Q3 results Aug. 5. Operating revenues were $327.8 million, up 2% YOY. The company posted net economic earnings (NEE) of $6.9 million, or 6 cents per share, compared to $7.3 million, or 7 cents per share in the year-ago period. Cash and equivalents ended the quarter at $23.9 million.
CEO Suzanne Sitherwood stated, “…we posted another solid quarter, delivering earnings comparable to a year ago … We remain on track with our comprehensive plans to upgrade utility infrastructure and technology, all in an effort to ensure our customers receive the safe, reliable and affordable natural gas service they deserve.”
The company’s annual NEE per share growth target is 5% to 7% over the long-term, driven by investments in pipeline upgrades, technology improvements and new business additions.
So far this year, SR stock has declined around 1%. Its consensus forward P/E ratio is 14.39x. The shares trade at 1.49 times trailing sales and 1.33 times book value. Given the company’s solid position and growth strategy, investors could consider buying the dip to hold SR stock for the long term.
On the date of publication, Tezcan Gecgil did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Tezcan Gecgil has worked in investment management for over two decades in the U.S. and U.K. In addition to formal higher education in the field, she has also completed all 3 levels of the Chartered Market Technician (CMT) examination. Her passion is for options trading based on technical analysis of fundamentally strong companies. She especially enjoys setting up weekly covered calls for income generation.
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