In this article, we discuss 12 best utility dividend stocks to buy. You can skip our detailed analysis of the utility sector and its outlook, and go directly to read 5 Best Utility Dividend Stocks To Buy.
The utility sector in the US is responsible for providing essential services such as electricity, water, and natural gas to residential, commercial, and industrial consumers. Utility stocks are considered to be defensive investments as they provide stable dividends and exhibit lower volatility compared to other sectors. In 2022, when inflation was at its record high, the Dow Jones Utility Average lost about merely 1.4%, compared with an 18% decline in the S&P 500. In addition to this, electricity sales in the US showed an upward trend in the US last year, showing a 3.6% year-over-year growth in the first eight months of the year, as we reported in our article 12 Cheap Utility Stocks to Buy According to Analysts.
Many utility companies in the US are regulated by the government to ensure the provision of essential services in a fair, reliable, and safe manner. Regulators also oversee and approve utility rates and returns on equities. While utility companies may argue for higher returns in high-interest rate periods, regulators become cautious about approving rate increases as they could burden consumers with higher costs. Karl Dunkle Werner and Stephen Jarvis’research published by the Energy Institute at Haas showed that due to higher costs, utility consumers could potentially be paying between $2 billion to $20 billion annually compared to what they would pay. Moreover, electric and gas utilities tracked by S&P Global Commodity Insights requested $12.4 billion in rate increases in 2022 through October. One reason for this is that utility companies often require significant capital investments to maintain and upgrade their infrastructure and comply with environmental regulations.
Biden’s Inflation Reduction Act (IRA) may aid in achieving this potential. According to a report published by Goldman Sachs, the impact of the IRA could lead to a staggering $11 trillion in infrastructure investments by 2050. The report further mentioned that by 2032, there will be a total investment opportunity of $2.9 trillion across different sectors for energy system transformation in the US. This translates to an average annual investment of $290 billion.
Also read: 10 Best Electric Utility Stocks To Buy Now
As we mentioned above, utility stocks are generally considered defensive investments because of the stable demand for the sector’s services and products. This means that these stocks can be great options to weather this market uncertainty. Analysts are also projecting a bullish outlook on the sector this year. Timothy Winter, portfolio manager at Gabelli Funds, spoke with Forbes earlier this year and highlighted the significance of utility stocks in this clean energy era. He said:
“Utilities are growing earnings at stronger than historical rates (5%-7% versus 3%-4%) as they continue to ramp up investment to transform from fossil fuel to clean energy. This requires new wind, solar, and battery storage as well as other new technologies (green hydrogen, carbon capture), upgraded transmission to move power around and handle intermittent wind/solar, upgrade distribution for solar panels, EV charging, and electrification.”
Another quality that makes utility stocks stand out is their stable dividends. Nearly all utility companies pay regular dividends to shareholders because of their consistent revenue streams. Some of the best dividend stocks in the utility sector include NextEra Energy, Inc. (NYSE:NEE), The AES Corporation (NYSE:AES), and Dominion Energy, Inc. (NYSE:D).
High-voltage power lines. Electricity distribution station. high voltage electric transmission tower. Distribution electric substation with power lines and transformers.
Our Methodology:
For this list, we used Insider Monkey’s database of 943 hedge funds as of Q1 2023 and selected utility companies that pay dividends to shareholders. From the resultant list, we picked 12 stocks with the highest number of hedge fund investors. The stocks are ranked in ascending order of hedge funds having stakes in them.
12. Brookfield Renewable Partners L.P. (NYSE:BEP)
Number of Hedge Fund Holders: 17
Brookfield Renewable Partners L.P. (NYSE:BEP) is one of the world’s largest publicly traded platforms of renewable power and decarbonization solutions. Recently, the company announced its plan to acquire Duke Energy’s utility-scale commercial renewable business for $1.05 billion. Through this deal, the company would be able to bring one of the largest renewable platforms in the US.
Brookfield Renewable Partners L.P. (NYSE:BEP) reported strong earnings in the first quarter of 2023, with revenue of over $1.3 billion, up 16.7% from the same period last year. At the end of March 31, the company had over $1.1 billion in cash and cash equivalents, compared with $998 million in the prior-year period.
Brookfield Renewable Partners L.P. (NYSE:BEP) currently pays a quarterly dividend of $0.3375 per share and has a dividend yield of 4.59%, as of June 20. It is one of the best dividend stocks on our list as it has raised its payouts for 12 years in a row. Other popular dividend stocks in the sector include NextEra Energy, Inc. (NYSE:NEE), The AES Corporation (NYSE:AES), and Dominion Energy, Inc. (NYSE:D).
In June, Mizuho raised its price target on Brookfield Renewable Partners L.P. (NYSE:BEP) to $32 and maintained an Outperform rating on the shares, highlighting the company’s overall performance.
At the end of Q1 2023, 17 hedge funds in Insider Monkey’s database reported having stakes in Brookfield Renewable Partners L.P. (NYSE:BEP), compared with 19 in the previous quarter. These stakes have a collective value of roughly $200 million.
ClearBridge Investments mentioned Brookfield Renewable Partners L.P. (NYSE:BEP) in its Q4 2022 investor letter. Here is what the firm has to say:
“Rising interest rates remain the key risk to renewables utility Brookfield Renewable Partners L.P. (NYSE:BEP), an underperformer in the fourth quarter, though we view Brookfield’s stable fundamentals (with >90% of contracted cash flows having an average term of 14 years), inflation protection (~70% of power purchase agreements are indexed to inflation) and long-term growth opportunities as attractive in the current environment. Brookfield’s balance sheet is also relatively well-protected against rising rates given it has 97% fixed-rate debt with an average term to maturity of 12 years.”
11. UGI Corporation (NYSE:UGI)
Number of Hedge Fund Holders: 20
UGI Corporation (NYSE:UGI) is an American electric power distribution company that also distributes other energy products and services. On May 3, the company declared a 4% hike in its quarterly dividend to $0.375 per share. This marked the company’s 36th consecutive year of dividend growth, making it one of the best dividend stocks on our list. The stock’s dividend yield on June 20 came in at 5.40%.
In fiscal Q2 2023, UGI Corporation (NYSE:UGI) reported revenue of $3.1 billion, which beat analysts’ estimates by $5.7 million. As of March 31, the company’s available liquidity amounted to roughly $2 billion.
In April, Mizuho initiated its coverage of UGI Corporation (NYSE:UGI) with a Neutral rating and a $38 price target. The firm presented a positive outlook on the utility sector.
As of the close of Q1 2023, 20 hedge funds tracked by Insider Monkey owned stakes in UGI Corporation (NYSE:UGI), the same as in the previous quarter. These stakes are collectively worth roughly $70 million. With over 7.3 million shares, First Eagle Investment Management was the company’s leading stakeholder in Q1.
10. Atmos Energy Corporation (NYSE:ATO)
Number of Hedge Fund Holders: 21
Atmos Energy Corporation (NYSE:ATO) is another best dividend stock on our list from the utility sector. The natural gas distribution company has been raising its dividends consistently for the past 38 years. It currently pays a quarterly dividend of $0.74 per share for a dividend yield of 2.53%, as of June 20.
For the six months that ended March 31, 2023, Atmos Energy Corporation (NYSE:ATO) reported an operating cash flow of roughly $2.9 billion, compared with $640.5 million during the same period last year. The company’s consolidated net income during this period came in at $630 million, up from $358 million in the prior-year period.
In April, Morgan Stanley raised its price target on Atmos Energy Corporation (NYSE:ATO) to $128 and maintained an Overweight rating on the shares.
At the end of March 31, 21 hedge funds owned stakes in Atmos Energy Corporation (NYSE:ATO), according to Insider Monkey’s database. The collective stake value of these funds is over $291.7 million.
9. Edison International (NYSE:EIX)
Number of Hedge Fund Holders: 25
Edison International (NYSE:EIX) is a California-based utility company that mainly provides clean and reliable energy services to its consumers. In May, Citigroup raised its price target on the stock to $86 with a Buy rating on the shares. The firm mentioned that the company’s narrative continues to improve this year.
Edison International (NYSE:EIX) currently pays a quarterly dividend of $0.7375 per share and has raised its payouts for 19 years in a row. With a dividend yield of 4.20% as of June 20, EIX is one of the best dividend stocks on our list.
Edison International (NYSE:EIX) was a part of 25 hedge fund portfolios at the end of Q1 2023, up from 23 in the previous quarter, as per Insider Monkey’s database. The stakes owned by these hedge funds have a collective value of over $1.17 billion. Pzena Investment Management was the company’s largest stakeholder with roughly 14 million shares.
8. The Southern Company (NYSE:SO)
Number of Hedge Fund Holders: 25
The Southern Company (NYSE:SO) is an American gas and electric utility holding company, based in Georgia. In the first quarter of 2023, the company reported revenue of $6.5 billion, which beat analysts’ estimates by $360 million. Its net income for the quarter came in at $862 million.
The Southern Company (NYSE:SO), one of the best dividend stocks on our list, currently offers a quarterly dividend of $0.70 per share. The company maintains a 22-year streak of consistent dividend growth. The stock’s dividend yield on June 20 came in at 3.90%.
According to Insider Monkey’s database for Q1 2023, 25 hedge funds owned stakes in The Southern Company (NYSE:SO), worth collectively over $440 million.
7. Consolidated Edison, Inc. (NYSE:ED)
Number of Hedge Fund Holders: 27
Consolidated Edison, Inc. (NYSE:ED) is a New York-based company that operates one of the world’s largest energy delivery systems. On April 20, the company declared a quarterly dividend of $0.81 per share, which was in line with its previous dividend. It is just one year away from becoming a Dividend King as it has raised its payouts for 49 years straight. The stock has a dividend yield of 3.48%, as of June 20.
In May, Guggenheim raised its price target on Consolidated Edison, Inc. (NYSE:ED) to $90 and kept a Neutral rating on the shares, following the company’s strong quarterly earnings.
The number of hedge funds tracked by Insider Monkey owning stakes in Consolidated Edison, Inc. (NYSE:ED) grew to 27 in Q1 2023, from 25 in the previous quarter. These stakes have a total value of over $344.2 million. Among these hedge funds, AQR Capital Management was the company’s leading stakeholder in Q1.
6. American Electric Power Company, Inc. (NASDAQ:AEP)
Number of Hedge Fund Holders: 34
American Electric Power Company, Inc. (NASDAQ:AEP) is an electric utility company, based in Ohio, US. In June, Goldman Sachs added the stock to its list of ‘decarbonization enablers’ and maintained a Buy rating on the stock. The firm expects the company to generate solid earnings growth this year.
American Electric Power Company, Inc. (NASDAQ:AEP) has been making regular dividend payments to shareholders since 1910 and has raised its payouts for 13 years running. The company currently pays a quarterly dividend of $0.83 per share and has a dividend yield of 3.91%, as recorded on June 20. Its strong dividend history makes it one of the best dividend stocks on our list from the utility sector.
NextEra Energy, Inc. (NYSE:NEE), The AES Corporation (NYSE:AES), and Dominion Energy, Inc. (NYSE:D) are some other popular utility stocks that pay dividends.
At the end of Q1 2023, 34 elite funds in Insider Monkey’s database owned stakes in American Electric Power Company, Inc. (NASDAQ:AEP), up from 33 a quarter earlier. These stakes are collectively worth over $463.2 million.
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Disclosure. None. 12 Best Utility Dividend Stocks to Buy is originally published on Insider Monkey.