As the markets have gotten rocky, investors are once again taking out their defensive playbooks. Growth and momentum stocks are out, stable dividend payers are in. And you can’t get any more stable than utility stocks.
It doesn’t matter what the overall economy is doing, people still need to heat and power their homes. As a result, utility stocks feature plenty of stable cash flows. Those stable cash flows are turned into plenty of steady dividend payments. No wonder why analysts describe the sector as “widow and orphan stocks.”
But in today’s rocky market, that certainly has appeal. Investors have rushed into the sector: the Utilities Select Sector SPDR Fund (NYSEArca:XLU) is up nearly 8% year to date while the S&P 500 is down slightly in 2018. That’s before dividends are included.
With the calendar turning over to 2019, many of the trends causing the rise in volatility aren’t stopping. To that end, making a calculated bet on utility stocks could be a great way to increase the safety and stability of a portfolio. The extra income won’t hurt either.
Here are 3 utility stocks that could power-up your portfolio in the new year.
Utility Stocks To Buy Today: PPL Corp. (PPL)
Dividend Yield: 5.38%
When it comes to utility stocks, PPL Corp. (NYSE:PPL) could be a great blend of both stability and growth potential.
On the stability side, PPL can’t be beaten. The firm features more than 8,000 megawatts worth of generating assets servicing more than 10 million customers in Pennsylvania and Kentucky, as well as some international operations in the U.K. These operations have helped generate plenty of steady revenues over the years. Last year alone, PPL managed to bring in more than $7.4 billion in power sales. Equally as impressive is that PPL has been able to turn those sales into growing dividends. The utility stock has increased its payout consecutively for the last 16 years — including its 4% bump at the end of 2017.
The growth side of PPL comes from the huge upgrade of its grid and generation system.
PPL currently generates the bulk of its power from old coal-fired plants. That’s a problem as PPL has pretty much maxed out what rate hikes it can seek from this infrastructure. By upgrading its fleet, PPL is expected to be able to continue a long runway of rate hikes on its customers. To that end, it’s spending a whopping $15 billion on new renewable energy projects through 2022.
The end game of that spending is an annual growth in earnings per share by roughly 6% and annual dividend growth of about 4% through 2020. That’s not tech like growth, but it is wonderfully steady for utility stocks.
Utility Stocks To Buy Today: Consolidated Edison (ED)
Dividend Yield: 3.44%
For those investors looking for more a stodgy utility, you can’t go wrong with Consolidated Edison (NYSE:ED). The company has been making it in New York for more than 180 years and provides electricity, steam and natural gas for metropolitan New York. That’s a good place to be as New York City, Westchester and parts of New Jersey feature a vibrant economy, strong fundamentals, and growing populations. That’s continued to boost ED’s bottom line for decades.
In fact, Con Ed has managed to grow its payout for 44 consecutive years.
And the 45th year should be coming down the pike shortly. Like PPL, Con Ed has recently undergone a transformation towards renewable energy. The firm recently purchased more than 1,000 megawatts worth of solar generation and started an aggressive plan to install smart meters in its operating area. Those tax credits and additional rate hikes has management guiding to a compounding annual growth rate 6% over the next three years for its rate hike balances. That will strengthen its cash flows and ultimately, its dividend.
The best part is that ED stock still remains cheap with a P/E of 16. That’s cheaper than the broader market and could be a real bargain for those looking for safety in utility stocks. Add in its current 3.5% yield and you have a recipe for success.
Utility Stocks To Buy Today: IDACORP Inc (IDA)
Dividend Yield: 2.48%
As exciting as New York City is, Idaho is the polar opposite. Or at least on the surface, it is. The piece of “fly-over” country actually features some of the fastest population growth in the entire Midwest. More to the point, that growth is coming on the back of plenty of manufacturing and tech muscle. This is good news for IDACORP Inc (NYSE:IDA) who has a monopoly position as a utility in Idaho and western Oregon.
This has helped generate plenty of profits for IDA overt the last few decades. The growing economy of the region helped the utility stock see a 12% increase to EPS last quarter. At the same time, management was able to raise full-year guidance on the region’s health.
Part of that jump comes from IDA’s strong focus on renewable and low-carbon energy production. The utility is one of the largest hydroelectric power producers in the country. That fills it coffers full of lucrative tax credits. The other piece of strong EPS growth comes from its non-regulated assets.
As a utility operating company, IDA also owns wide swaths of real estate in the fast-growing region. With the economy continuing to boom, these office and apartment buildings are now providing plenty of rent growth to its bottom line. An added boost, its tenants use IDA as their power provider. But investors shouldn’t worry, real estate is a small piece to the utility stocks overall pie.
In the end, IDA could be one of the more growth-oriented utility stocks and the share price — at a P/E of 21 — reflects that fact.
Disclosure: At the time of writing, Aaron Levitt did not hold a position in any stocks mentioned.
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