Investors generally buy utility stocks for security and dividends. Indeed, utility stocks have often been referred to as “widow and orphan” stocks due to their consistency and reliability of dividend payouts year after year.
With the ongoing war in Ukraine, rising inflation and the prospect of a recession in the United States, now is an opportune time for risk-averse income investors to consider adding utilities to their wallets.
These three utility stocks have dividend yields above the S&P500 average, as well as the ability to maintain their dividends even during recessions.
|CME||WEC Energy Group||$107.05|
|BKH||Black Hills Corp.||$78.64|
Utilities Stocks to Buy: WEC Energy Group (WEC)
WEC Energy Group (NYSE:CME) 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 in non-public wind projects over the past two years.
WEC Energy Group has a five-year investment plan that includes an 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 second quarter of 2022, the company reported revenue of $2.13 billion, up 27% year-over-year (YOY) and above estimates of $370 million. Earnings per share (EPS) of 91 cents also beat 6 cents per share. Additionally, the WEC raised its full-year earnings forecast, now expecting EPS to be between $4.36 and $4.40 (compared to the original forecast of $4.29 to $4.33). $).
As a utility company, WEC Energy Group is expected to remain profitable during recessions as customers typically prioritize their gas and electric bills. EPS increased during the last recession, growing nearly 13% from 2007 to 2009. The company is able to recoup expenses to update infrastructure through the customers it serves. WEC Energy Group’s expansion into renewable energy, such as wind farms, could help it grow due to the potential for higher return on investment.
WEC Energy Group compounded EPS at a rate of 6.4% per annum from 2012 to 2021. Investors can continue to expect the company to be able to grow EPS by a single digit percentage average each year, mainly due to the increase in income and returns from non-public investments. The dividend has compounded at a rate of 5.3% over the past five years.
The WEC has increased its dividend for 19 consecutive years. The most recent increase was a 7.4% increase in December 2021. The expected dividend payout rate for 2022 is 67%, which is relatively low for a utility company. WEC Energy Group has a target payout ratio of 65% to 70%. WEC stock is currently down 2.7%.
Black Hills Corp (BKH)
Black Hills Society (NYSE:BKH) is an electric utility company that supplies 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 second quarter of 2022, Black Hills reported quarterly revenue of $474 million, up 27% year-over-year and above analyst estimates of $79 million. EPS of 52 cents beat estimates of 12 cents per share. The company reaffirmed its full-year guidance, expecting EPS of between $3.95 and $4.15 for 2022.
Black Hills’ growth over the next few years will be driven largely by rate revisions, which drive revenue and profit per kilowatt hour (kWh). Another factor is the expansion of the company’s existing assets through new utility infrastructure. Black Hills is steadily adding new projects to its growth investment backlog, which currently stands at $2.7 billion for the 2020-2024 period.
Black Hills’ planned growth investments include new power lines and gas pipelines to serve its customers. The rate revisions will allow Black Hills to recoup investments in its existing systems, more or less guaranteeing increased revenue, which should lead to increased profits in the future.
The company pays around 60% of its net profits in the form of dividends. Its five decades of dividend growth history gives investors confidence that a dividend cut is unlikely from this utility company. The demand for electricity and gas is not very cyclical, although it depends to some extent on weather conditions.
Black Hills should remain profitable under most circumstances. The fact that customers tend to stay loyal to 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 an appeal for more conservative investors.
Black Hills has increased its dividend for 50 consecutive years, placing it on the exclusive account Dividend Kings listing. BKH stock is currently yielding 3.1%.
Utilities stocks to buy: NextEra Energy (NEE)
NextEra Energy (NYSE:BORN) 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 Florida residents, while NEER is the largest wind power generator and solar in the world.
NEE generates about 70% of its revenue from its electric utilities, while the rest comes from NEER. NextEra Energy released its second quarter 2022 financial results on July 22. For the quarter, the company reported revenue of $5.18 million, translating into adjusted earnings of $1.59 million (up 14.2% year-over-year).
Per share, adjusted earnings climbed 14.1% to 81 cents. Mainly driven by continued investments, FPL recorded an 11% increase in EPS. Additionally, the strength of NEER’s existing renewables and storage portfolio continued – adjusted EPS increased by more than 20%. It also added about 2,035 net milliwatts (MW) of renewables to its backlog. The order book now stands at approximately 19,600 MW.
For the first half of the year, revenue rose 5.5% to $8.07 million and adjusted EPS rose 11.6% to $1.54. Management increased its 2022 Adjusted EPS guidance range to $2.80-$2.90.
Between 2012 and 2021, NextEra Energy increased its EPS by an average of 9.3% per year. The future growth of the company will be generated by organic investments and acquisitions. Its renewable projects are expected to boost the segment’s earnings going forward. NEE expects its adjusted EPS to grow 6-8% per year through 2025.
NextEra Energy has increased its dividend for 26 consecutive years, making the stock a Dividend Aristocrat. NEE stock yields 1.8%.
As of the date of publication, Bob Ciura does not have (neither directly nor indirectly) a position in any of the securities mentioned in this article. The opinions expressed in this article are those of the author, subject to InvestorPlace.com publishing guidelines.