In this article, we discuss the 10 best utilities stocks to buy for dividends.
The utilities sector is dealing with tough challenges in 2022 as it seeks to boost clean energy, ensure reliability, and maintain security while keeping costs down for the end user. The impact of the COVID-19 crisis on the sector is beginning to dissipate. One indicator of this is that electricity sales in the US rose by 3.8% through August 2021 over the previous year. As the economic recovery gathers pace, decarbonization, digitalization, and decentralization are emerging as some of the key trends that are likely to shape the future of the industry.
According to a report by professional services firm Deloitte, at the end of October 2021, 46 out of 54 US investor-owned utilities had pledged to reduce carbon emissions. More utilities will sign on to clean energy pledges this year. However, the resilience of these new units remains an issue. Deloitte estimates that 51% of those working in the utility sector claim that extreme weather has affected the reliability of electricity delivery more than usual in the past year. Firms are turning to digital transformations and smart grid operations to help solve these problems.
As inflation rises, investors are exiting profitless firms for safer havens. The utilities sector, with a long history of dividend payments and less susceptibility to overall market volatility, has attracted a lot of interest on Wall Street in recent weeks. Some of the top utilities stocks to buy for dividends according to hedge funds include Duke Energy Corporation (NYSE:DUK), Consolidated Edison, Inc. (NYSE:ED), and American Electric Power Company, Inc. (NASDAQ:AEP).
Our Methodology
The companies that operate in the utilities sector and have a solid track record of dividend payouts were selected for the list. The business fundamentals and analyst ratings of these firms are also discussed to provide further context. The forward dividend yield is mentioned alongside other details about the firms below. Hedge fund sentiment was included as a classifier as well. Data from around 900 elite hedge funds tracked by Insider Monkey was used to quantify the hedge fund sentiment around each stock.
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Best Utilities Stocks to Buy for Dividends
10. CenterPoint Energy, Inc. (NYSE:CNP)
Number of Hedge Fund Holders: 25
Forward Dividend Yield: 2.11%
CenterPoint Energy, Inc. (NYSE:CNP) is a Texas-based public utility holding company. Dave Lesar, the CEO of the firm, recently said that the company was focused on delivering on a strategic plan that includes nearly $40 billion of capital investments in the utility sector in the next ten years. The firm is also targeting EPS growth of around 8% in the next two years. CenterPoint Energy beat market estimates on revenue for the fourth quarter of 2021 by more than $360 million. It has paid a dividend to shareholders consistently for the past 22 years.
On April 19, Wells Fargo analyst Sarah Akers maintained an Overweight rating on CenterPoint Energy, Inc. (NYSE:CNP) stock and raised the price target to $36 from $31, citing higher peer group multiples.
At the end of the fourth quarter of 2021, 25 hedge funds in the database of Insider Monkey held stakes worth $165 million in CenterPoint Energy, Inc. (NYSE:CNP), up from 14 in the previous quarter worth $134 million.
Just like Duke Energy Corporation (NYSE:DUK), Consolidated Edison, Inc. (NYSE:ED), and American Electric Power Company, Inc. (NASDAQ:AEP), CenterPoint Energy, Inc. (NYSE:CNP) is one of the stocks that elite investors are flocking to as the market becomes more volatile.
In its Q3 2021 investor letter, Miller Howard Investments, an asset management firm, highlighted a few stocks and CenterPoint Energy, Inc. (NYSE:CNP) was one of them. Here is what the fund said:
“In late August, we increased the portfolio’s cyclical exposure by trimming utilities after a period of relative outperformance and reallocating the capital to midstream energy, which had pulled back over the summer. Additionally, we trimmed CenterPoint Energy, Inc. (NYSE:CNP) after periods of relative strength. We had previously increased our positions in late 2020 and February 2021, respectively, after periods of relative weakness.”
9. Atmos Energy Corporation (NYSE:ATO)
Number of Hedge Fund Holders: 20
Forward Dividend Yield: 2.26%
Atmos Energy Corporation (NYSE:ATO) engages in the natural gas distribution, pipeline and storage business. The company has an impressive dividend history stretching back close to four decades. It has grown the dividend payout consistently for the past 37 years. On February 8, the firm declared a quarterly dividend of $0.68 per share, in line with previous. After beating market estimates on earnings for the first quarter of 2022, Atmos Energy Corporation (NYSE:ATO) has reaffirmed 2022 guidance and expects EPS of around $5.60 compared to analyst estimates of $5.50.
On March 25, Barclays analyst Eric Beaumont kept an Equal Weight rating on Atmos Energy Corporation (NYSE:ATO) stock and raised the price target to $115 from $101. The analyst highlighted valuation as one of the reasons behind the ratings update.
Among the hedge funds being tracked by Insider Monkey, Connecticut-based investment firm AQR Capital Management is a leading shareholder in Atmos Energy Corporation (NYSE:ATO) with 157,315 shares worth more than $16 million.
8. DTE Energy Company (NYSE:DTE)
Number of Hedge Fund Holders: 27
Forward Dividend Yield: 2.52%
DTE Energy Company (NYSE:DTE) is a utilities company. On March 29, the company announced that it would be partnering with ride-hailing service Lyft to incentivize drivers in the electric service territory of the former who purchase or lease an electric vehicle for use on the platform of the latter. In addition to investing in the EV business, DTE has also proposed a plan to spend nearly $400 million to modernize the energy grid of Michigan that will meet growing demands of electrification.
On March 10, Argus analyst Marie Ferguson kept a Buy rating on DTE Energy Company (NYSE:DTE) stock and raised the price target to $132 from $130, backing the firm to grow earnings per share by 5% to 6% in the next five years.
At the end of the fourth quarter of 2021, 27 hedge funds in the database of Insider Monkey held stakes worth $778 million in DTE Energy Company (NYSE:DTE), up from 22 in the previous quarter worth $426 million.
7. CMS Energy Corporation (NYSE:CMS)
Number of Hedge Fund Holders: 25
Forward Dividend Yield: 2.54%
CMS Energy Corporation (NYSE:CMS) is a Michigan-based energy company. The firm has a solid track record with regards to dividend payouts, having consistently paid a dividend to shareholders for the past fourteen years. In the last two years, these payouts have been growing. On January 27, CMS declared a quarterly dividend of $0.46 per share, an increase of close to 6% from the previous payout of around $0.43 per share. The firm beat market estimates on revenue for the fourth quarter of 2021 by $250 million.
On April 1, Argus analyst David Coleman kept a Buy rating on CMS Energy Corporation (NYSE:CMS) stock and raised the price target to $78 from $70, citing a favorable location in Michigan, a high proportion of skilled labor, and a business-friendly regulatory environment as some of the positives for the stock.
Among the hedge funds being tracked by Insider Monkey, New York-based investment firm Zimmer Partners is a leading shareholder in CMS Energy Corporation (NYSE:CMS) with 2.6 million shares worth more than $175 million.
In its Q1 2021 investor letter, Miller Howard Investments, an asset management firm, highlighted a few stocks and CMS Energy Corporation (NYSE:CMS) was one of them. Here is what the fund said:
”We added CMS Energy Corporation (NYSE:CMS), a name poised to benefit from above-average earnings growth. We initiated a position in this high-quality utility after a period of relative weakness in which its premium to the group narrowed.”E Energy Company (NYSE:DTE), up from 22 in the preceding quarter worth $426 million.”
6. Eversource Energy (NYSE:ES)
Number of Hedge Fund Holders: 24
Forward Dividend Yield: 2.76%
Eversource Energy (NYSE:ES) is an energy delivery firm. On March 8, the shares of the firm jumped by close to 3% after it announced that it would be purchasing water distribution company Torrington Water in a deal worth $80 million. The purchase is likely to benefit the Aquarion water distribution subsidiary of Eversource. Aquarion already has a customer base of around 226,000 and the acquisition will add nearly 10,000 to this number. The per share price in the deal is nearly double the amount at which the shares closed on March 7.
Eversource Energy (NYSE:ES) is one of the most reliable players in the utility sector with regards to dividend payments. For the past 22 years, the firm has consistently grown the payout. On February 2, the firm hiked the quarterly dividend by close to 6% to $0.6375 per share.
Among the hedge funds being tracked by Insider Monkey, London-based investment firm GLG Partners is a leading shareholder in Eversource Energy (NYSE:ES) with 324,384 shares worth more than $29 million.
Alongside Duke Energy Corporation (NYSE:DUK), Consolidated Edison, Inc. (NYSE:ED), and American Electric Power Company, Inc. (NASDAQ:AEP), Eversource Energy (NYSE:ES) is one of the stocks that hedge funds are buying amid rising inflation.
5. Black Hills Corporation (NYSE:BKH)
Number of Hedge Fund Holders: 19
Forward Dividend Yield: 3.01%
Black Hills Corporation (NYSE:BKH) is an electric and natural gas utility company. The firm has an impressive dividend history that stretches back five decades. It has grown the dividend payout consistently for the past fifty years. On January 26, the company declared a quarterly dividend of $0.595 per share, in line with previous. In earnings results for the fourth quarter of 2021, the firm beat market estimates on revenue by over $59 million. The firm has over 1 million natural gas utility customers.
On February 7, Mizuho analyst Paul Fremont upgraded Black Hills Corporation (NYSE:BKH) stock to Buy from Neutral with a price target of $71, citing valuation as one of the primary reasons behind the ratings upgrade.
At the end of the fourth quarter of 2021, 19 hedge funds in the database of Insider Monkey held stakes worth $71 million in Black Hills Corporation (NYSE:BKH), compared to 16 the preceding quarter worth $55 million.
4. American Electric Power Company, Inc. (NASDAQ:AEP)
Number of Hedge Fund Holders: 34
Forward Dividend Yield: 3.05%
American Electric Power Company, Inc. (NASDAQ:AEP) operates as an electric public utility holding company. It has stepped up investments in the clean energy sector in recent months to reflect the broader trends in the industry. On March 15, the firm announced that it was seeking proposals for 500 MW of solar power in Indiana or Michigan and 800 MW of wind energy in those two states along with Illinois or Ohio. The company already operates five solar farms and expects a number of new renewable facilities to be online by 2024.
On March 29, Mizuho analyst Paul Fremont kept a Buy rating on American Electric Power Company, Inc. (NASDAQ:AEP) stock and raised the price target to $104 from $94, highlighting that the updated ratings reflected the higher capital spending and the reallocation of investments from renewables to the transmission business.
At the end of the fourth quarter of 2021, 34 hedge funds in the database of Insider Monkey held stakes worth $827 million in American Electric Power Company, Inc. (NASDAQ:AEP), compared to 36 in the previous quarter worth $751 million.
3. Dominion Energy, Inc. (NYSE:D)
Number of Hedge Fund Holders: 34
Forward Dividend Yield: 3.07%
Dominion Energy, Inc. (NYSE:D) produces and distributes energy. On March 16, the company announced that authorities in Virginia had approved a large expansion of existing solar and wind energy storage projects. The expansion will provide 1,000 MW of carbon-free electricity. This is enough to power 250,000 homes in Virginia at peak output. The expansion plan includes work on 15 different projects. The work on the expansion is expected to be completed by 2023 and helps the firm on the path to net zero greenhouse gas emissions.
In early January, UBS analyst Ross Fowler upgraded Dominion Energy, Inc. (NYSE:D) stock to Buy from Neutral and raised the price target of $98 from $81, underlining that the stock was “undervalued” relative to the long-dated regulated rate base growth and “clean regulatory calendar”.
Among the hedge funds being tracked by Insider Monkey, Ohio-based investment firm Diamond Hill Capital is a leading shareholder in Dominion Energy, Inc. (NYSE:D) with 3.6 million shares worth more than $284 million.
2. Consolidated Edison, Inc. (NYSE:ED)
Number of Hedge Fund Holders: 22
Forward Dividend Yield: 3.22%
Consolidated Edison, Inc. (NYSE:ED) has interests in the electric, gas, and steam delivery businesses. The company posted earnings for the fourth quarter of 2021 on February 17, reporting earnings per share of $1, beating market estimates by $0.14. The revenue over the period was $3.4 billion, up more than 15% year-on-year and beating analyst estimates by $510 million. The company said it expected earnings per share of around $4.6 in fiscal year 2022 against analyst estimates of $4.48.
On March 10, Mizuho analyst Anthony Crowdell kept a Buy rating on Consolidated Edison, Inc. (NYSE:ED) stock and raised the price target to $94 from $90, noting that the price target was raised to reflect current market multiples in relation to the firm.
At the end of the fourth quarter of 2021, 22 hedge funds in the database of Insider Monkey held stakes worth $323 million in Consolidated Edison, Inc. (NYSE:ED), compared to 24 in the preceding quarter worth $364 million.
1. Duke Energy Corporation (NYSE:DUK)
Number of Hedge Fund Holders: 36
Forward Dividend Yield: 3.44%
Duke Energy Corporation (NYSE:DUK) operates as an energy firm. The company recently announced that it would be seeking a rate hike from the North Carolina Utilities Commission as part of an annual adjustment of the cost of fuel used to power the region. If the new rates are approved, the average bill of residential customers will increase by around 6.6%. The firm is also considering investments in small-scale nuclear reactors as part of a plan to reduce carbon emissions. The company is a reliable dividend player having grown the payout consistently in the past eleven years.
On April 7, KeyBanc analyst Sophie Karp maintained an Overweight rating on Duke Energy Corporation (NYSE:DUK) stock and raised the price target to $119 from $110, noting that the firm was “well positioned as a core utility investment” and warranted a “premium to large cap peers” given tailwinds in customer growth in the sector.
At the end of the fourth quarter of 2021, 36 hedge funds in the database of Insider Monkey held stakes worth $1.1 billion in Duke Energy Corporation (NYSE:DUK), up from 32 in the preceding quarter worth $687 million.
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Disclosure. None. 10 Best Utilities Stocks to Buy for Dividends is originally published on Insider Monkey.
