Investors typically buy utility stocks for safety and dividends. Indeed, utility stocks have often been referred to as “widow and orphan” stocks due to their consistency and reliable dividend payouts year after year.
With the ongoing war in Ukraine, rising inflation and the prospect of a U.S. recession, it’s an opportune time for risk-averse income investors to consider adding utilities to their portfolios.
These three utility stocks have dividend yields above the S&P 500 average, as well as the ability to maintain their dividends even during recessions.
| WEC | WEC Energy Group | $107.05 |
| BKH | Black Hills Corp. | $78.64 |
| NEE | NextEra Energy | $88.82 |
Utility Stocks to Buy: WEC Energy Group (WEC)
WEC Energy Group (NYSE:WEC) provides electric, gas and steam service to customers in Wisconsin and gas service to customers in Illinois, Minnesota and Michigan. In total, WEC Energy Group provides services to 1.6 million customers. The company has also invested nearly $600 million into nonutility wind projects over the past two years.
WEC Energy Group has a five-year capital plan that includes investment of 1,800 megawatts of wind, solar and battery storage that will be added to the company’s regulated asset base in Wisconsin. The company has annual revenues of just over $8 billion.
In the 2022 second quarter, the company reported revenue of $2.13 billion, up 27% year-over-year (YOY) and better than estimates by $370 million. Earnings per share (EPS) of 91 cents also beat by 6 cents per share. In addition, WEC increased its full-year earnings guidance, now expecting EPS in a range of $4.36 to $4.40 (compared to original guidance of $4.29 to $4.33).
As a utility company, WEC Energy Group is likely to remain profitable during recessions, as customers usually prioritize their gas and electric bills. EPS increased during the last recession, growing nearly 13% from 2007 to 2009. The company is able to recover spending to update infrastructure through the customers it serves. WEC Energy Group’s expansion into renewable energy, like wind farms, could help it grow due to the potential of higher return on investments.
WEC Energy Group compounded EPS by a rate of 6.4% per year from 2012 to 2021. Investors can continue to expect that the company will be able to increase EPS by mid-single-digits on a percentage basis each year, primarily attributable to increases in revenue and returns from nonutility investments. The dividend has compounded at a rate of 5.3% over the last five years.
WEC has increased its dividend for 19 consecutive years. The most recent raise was a 7.4% hike in December 2021. The expected dividend payout ratio for 2022 is 67%, which is relatively low for a utility company. WEC Energy Group has a targeted payout ratio of 65% to 70%. WEC stock currently yields 2.7%.
Black Hills Corp (BKH)
Black Hills Corp (NYSE:BKH) is an electric utility company that provides electricity and natural gas to customers in Colorado, Iowa, Kansas, Montana, Nebraska, South Dakota and Wyoming. Black Hills was founded in 1941, and the company is headquartered in Rapid City, South Dakota.
In the 2022 second quarter, Black Hills reported quarterly revenue of $474 million, up 27% year-over-year and ahead of analyst estimates by $79 million. EPS of 52 cents beat estimates by 12 cents per share. The company reaffirmed its full-year guidance, expecting EPS in a range of $3.95 to $4.15 for 2022.
Black Hills’ growth over the coming years will be due largely to rate reviews, which drive revenues and profits per kilowatt hour (kWh). Another factor is the expansion of the company’s existing assets via new utility infrastructure. Black Hills regularly adds new projects to its growth investment backlog, which currently stands at $2.7 billion for the 2020-2024 timeframe.
Black Hills’ planned growth investments include new electric transmission lines and new natural gas pipelines to service its customers. Rate reviews will allow Black Hills to recover investments into its existing systems, thereby more or less guaranteeing increasing revenues, which should lead to rising profits going forward.
The company pays out roughly 60% of its net profits in the form of dividends. Its five-decades-long dividend growth track record gives investors assurance that a dividend cut is unlikely from this utility company. Demand for electricity and gas is not very cyclical, although it is dependent upon weather conditions to some degree.
Black Hills should remain profitable under most circumstances. The fact that customers tend to stick with their provider means that Black Hills operates a relatively stable business model. The company should also be able to weather future recessions well. This creates appeal for more conservative investors.
Black Hills has increased its dividend for 50 consecutive years, placing it on the exclusive Dividend Kings list. BKH stock currently yields 3.1%.
Utility Stocks to Buy: NextEra Energy (NEE)
NextEra Energy (NYSE:NEE) is an electric utility company with three operating segments, Florida Power and Light, NextEra Energy Resources and Gulf Power. FPL and Gulf Power are rate-regulated electric utilities that together serve more than 5.7 million customer accounts, supporting more than 11 million residents in Florida, while NEER is the largest generator of wind and solar energy in the world.
NEE generates roughly 70% of its revenues from its electric utilities, whereas the remainder comes from NEER. NextEra Energy reported its Q2 2022 financial results on July 22. For the quarter, the company reported revenues of $5.18 million, translating to adjusted earnings $1.59 million (up 14.2% YOY).
On a per-share basis, adjusted earnings climbed 14.1% to 81 cents. Driven primarily by continued investment, FPL saw an 11% increase in EPS. Furthermore, strength continued at NEER’s existing renewables and storage portfolio — adjusted EPS increased more than 20%. It also added about 2,035 net milliwatt (MW) of renewables to its backlog. The backlog now stands at about 19,600 MW.
For the first half of the year, revenue grew 5.5% to $8.07 million, and adjusted EPS grew 11.6% to $1.54. Management boosted its 2022 adjusted EPS guidance range to $2.80-$2.90.
Between 2012 and 2021, NextEra Energy grew its EPS by 9.3% a year on average. The company’s future growth will be generated through organic investments and acquisitions. Its renewable projects should drive the segment’s profits going forward. NEE forecasts that its adjusted EPS will rise 6%-8% a year through 2025.
NextEra Energy has increased its dividend for 26 consecutive years, making the stock a Dividend Aristocrat. NEE stock yields 1.8%.
On the date of publication, Bob Ciura did not have (either directly or indirectly) positions in any of the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.