Stable income for dividend investors.
The stock market is up strongly for the year, but in many ways that's just a trick of timing. The gain for the S&P 500 index of large U.S. stocks is a nice 18% or so since Jan. 1, and yes, the S&P is up by low single digits when you go back a full 12 months -- with plenty of ups and downs in between. This choppy market environment makes many investors a bit timid. And if you're looking for safer stocks right now, there's perhaps no sector that more stable than utilities. Many utilities are geographic monopolies. There may not be a ton of growth, but there's a lot of stability -- and as the following stocks show, a healthy helping of dividends to boot.
Southern Co. (ticker: SO)
At $60 billion, Southern Co. represents what many investors think about when they conjure up the idea of a utility stock. The Atlanta-based company operates electricity generation and distribution assets, including nuclear power plants, renewable facilities like solar, wind and hydroelectric generation centers, and traditional fossil fuel plants. It also operates a natural gas segment that offers wholesale gas services. SO stock has had its trouble in recent years including cost overruns and chronic delays on a massive new nuclear power plant. But the stock is up handily in 2019, hinting that brighter days may be ahead. Of course, the juicy dividend is a nice hedge against any future share price declines.
Current yield: 4.2%
Duke Energy Corp. (DUK)
Another big dog in the utility sector, Duke is a $67 billion behemoth that provides electric power to 7.2 million customers across a large portion of the U.S., from the Carolinas to Florida to Kentucky to Ohio. In addition to its unrivaled scale, DUK stock just notched its 15th consecutive annual dividend increase in August, as the power giant offered a modest bump to payouts as part of its long term commitment to returning cash to its shareholders.
Current yield: 4%
Oneok isn't a traditional electric utility like Southern Co. or Duke Energy. It's an important distributor of energy across the U.S. economy through the processing and transportation of natural gas across the Midwest and Rocky Mountain regions. With distribution operations from Oklahoma to Colorado and from Texas to North Dakota, this $30 billion company is at the center of the natural gas industry for much of the nation. Natural gas is an important bridge to a clean energy future, since it's the cleanest burning of all fossil fuels. And, more businesses are relying on OKE's natural gas operations to power their operations with less of a carbon footprint.
Current yield: 5%
Algonquin Power & Utilities Corp. (AQN)
Looking north of the border, AQN is a mid-sized an independent power producer in Canada that serves about 600,000 customers in the Toronto region with power and gas services. However, it also conducts a modest water and wastewater business right here in the U.S. with targeted operations in states like California and Massachusetts. Power is often seen as a necessity in this age of high tech, but water is even more important. That means Algonquin has a strong baseline for its business as customers will cut back on just about everything before they turn off the tap.
Current yield: 4.2%
Entergy Corp. (ETR)
New Orleans-based Entergy is a $22 billion utility that uses gas, oil, coal, nuclear and solar to generate power for roughly 3 million customers in the South, from Arkansas to Texas to Louisiana. ETR's portfolio is a bit "dirtier" than some other utilities, so there's a transition risk as global regulators become increasingly focused on carbon emissions from fuel sources like coal. That means ETR is allocating more of its cash toward capital expenditures and skimping a bit on dividends when compared with its peers. However long term investors should have confidence that these investments will keep Entergy relevant for many years to come.
Current yield: 3.2%
Fortis operates an electric and gas utility network that includes Canada, the U.S. and the Caribbean serving roughly 2 million customers. It's clearly a complicated outfit and the broad and scattered operations don't quite add up comfortable margins as other companies. However, for dividend investors, this diversified customer base could actually be a nice draw. Furthermore, with dividends that are about 70% of total earnings, the yield is not just comfortably secure right now. The company's dividend payout could be set up for future increases if and when operations expand and the business improves.
Current yield: 3.2%
Edison International (EIX)
Edison International is another power generation company that operates just the way you would expect a traditional utility stock to operate. Through hydroelectric, petroleum, natural gas, nuclear and solar sources, EIX generates power over nearly 100,000 line miles in California to serve 5 million customers. What's more, in addition to this scale, the company is only paying out a little more than half of its earnings per share in dividends at present. That means a lot of stability, a lot of extra cash to invest in modernizing its infrastructure and the chance for significant increases in the near future.
Current yield: 3.5%
Exelon Corp. (EXC)
Exelon is among largest utilities in the U.S., valued at $45 billion and serving major metro areas such as Chicago, Philadelphia and the District of Columbia. Anyone who has read about changing demographics in the U.S. knows that there is a flight toward urban centers like these -- meaning that while some more rural utilities may never see much increase in the way of the customer base, EXC has some tailwinds on its side. Its dividend is smaller than the others on this list, but if you're looking for a combination of big-time scale and the potential for future growth in a utility stock, EXC may be a good way to harness both of these trends.
Current yield: 3%
TerraForm Power (TERP)
At $3.5 billion in market capitalization, TerraForm is not one of the larger or better known utilities. But with a focus on clean power generation assets, including solar and wind, it is seeing a ton of demand as the world looks to move away from power generation that's dependent on fossil fuels. The result has been an incredible 30% surge in revenue this fiscal year -- something unheard of in the utility sector. And while dividends are currently eating into profits as the company also spends heavily on its growth plans, the future is undoubtedly bright as TERP presents a new way forward in a low carbon era.
Current yield: 4.8%
Best utility dividend stocks to buy:
-- Southern Co. (SO)
-- Duke Energy Corp. (DUK)
-- Oneok (OKE)
-- Algonquin Power & Utilities Corp. (AQN)
-- Entergy Corp. (ETR)
-- Fortis (FTS)
-- Edison International (EIX)
-- Exelon Corp. (EXC)
-- TerraForm Power (TERP)
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