With macroeconomic pressures weighing heavily on market sentiment, investors should play it (relatively) safe with utility stocks to buy. Fundamentally, these energy and resource service providers represent an indelible demand structure. No matter how advanced we become as a society, humans have basic needs that must be fulfilled.
Moreover, utility stocks to buy essentially tie into monopolistic business structures. Unlike other sectors, the barrier to entry in this field is incredibly steep. Un7less people at scale plan on living off grid, they must pay whatever company covers their area. In other words, the utilities enjoy a hostage audience.
Another factor that keeps the lights on for utility stocks to buy centers on the trade-down effect. Typically, consumers facing financial pressures will trade down products or services to increasingly cheaper alternatives. However, in most cases, no alternatives exist for utilities.
It’s awfully cynical but that’s the deal. So, below are seven utility stocks to buy.
|CIG||Energy Company of Minas Gerais||$1.92|
Duke Energy (DUK)
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Headquartered in Charlotte, North Carolina, Duke Energy (NYSE:DUK) is an electric power and natural gas holding firm. Its electric utilities serve 8.2 million customers in North Carolina, South Carolina, Florida, Indiana, Ohio and Kentucky. On a year-to-date basis, DUK gave up nearly 8% of equity value. Though not good, on a relative basis, it’s certainly not bad.
Fundamentally, Duke benefits from migration trends. For instance, its home state of North Carolina represents an attractive region for young people. More recently, a local newspaper noted that millennials have begun flocking to Raleigh. While Duke will always make money, it’s also positioned to advantage demographic growth.
As well, investors should consider DUK as one of the utility stocks to buy for its passive income. Per Dividend.com, the company offers a forward yield of 4.21%. This ranks higher than the sector average yield of 3.75%. Additionally, the company features 17 years of consecutive dividend increases, a status management will not give up easily.
Dominion Energy (D)
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A power and energy firm located in Richmond, Virginia, Dominion Energy (NYSE:D) also benefits from millennial migration trends. Per its public profile, the company provides electricity services to parts of Virginia, North Carolina, and South Carolina and supplies natural gas to parts of Utah, Idaho and Wyoming, West Virginia, Ohio, Pennsylvania, North Carolina, South Carolina and Georgia.
Now, it’s possible to have lengthy discussions about each of these states and what they offer for millennials seeking lower costs of living. However, I’m going to point out Utah. For one thing, Utah attracts young people for more reasonable housing costs. In addition, the state provides a robust environment for businesses, perfect for the burgeoning gig economy.
Similar to Duke above, Dominion ranks among the utility stocks to buy because of its passive income potential. Currently, the company offers a forward yield of 4.57%. Again, that’s noticeably higher than the sector average. In addition, the payout ratio is 61.41%, which while on the high side is still reasonable in terms of sustainability.
Sempra Energy (SRE)
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Life isn’t fair and Sempra Energy (NYSE:SRE) (perhaps more so than any other utility stocks to buy) drives this point home. Based in San Diego, California, Sempra covers the lucrative Southern California market. As you probably, the Golden State represents the economic engine of the U.S., pumping out a GDP of $3.3 trillion.
Why is this important for SRE stock? Well, no matter what experts (and politicians) say about people rushing for the exits to the safe haven of Arizona, Texas or what have you, California represents a coastal state with warm-water ports. Therefore, this state will always be relevant and frankly, will always be the most important to the U.S.
Logically, then, this dynamic gives Sempra incredible leverage. The company’s core consumer base (generally speaking) are wealthier than average. So, folks have no choice but to pay up. No one said you have to like it but it’s just the harsh reality.
York Water (YORW)
An investor-owned, public utility company operating in Pennsylvania, York Water (NASDAQ:YORW) serves an estimated population of 190,000 through approximately 66,000 service connections across 48 municipalities. Certainly, it’s not the sexiest name among utility stocks to buy (not that this sector appeals in that manner). However, for slow-and-steady reliability, few investments rank above YORW.
Indeed, York Water offers a small piece of American history. Per its public profile, the company carries the distinction of the oldest investor-owned utility in the nation. It also has the longest record of consecutive dividends since 1816. You know who served as POTUS at the time? James Monroe, the fifth president and the last from the Founding Fathers.
That’s neither here nor there other than to say that management surely wants to keep this prestigious status alive. Currently, York Water features a forward yield of 1.77%. Though lower than the sector average, its payout ratio of 54.52% makes the dividends more sustainable than others.
Otter Tail (OTTR)
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For the final three ideas among utility stocks to buy, I’m going to take the path less traveled, beginning with Otter Tail (NASDAQ:OTTR). Based out of Minnesota, Otter Tail is an energy firm which serves at least 423 towns at retail and delivers power to about 14 municipal utilities. Since the start of the year, OTTR dropped over 21% of equity value, making it a risky idea.
However, contrarians might see an upside opportunity with OTTR. Mainly, the company enjoys solid income-statement-related metrics. For instance, its three-year revenue growth rate stands at 7.6%, ranked higher than 63% of the competition. Also, its net margin pings at nearly 20%, which ranks better than almost 85% against its peers.
If that wasn’t enough, OTTR trades at 7.9-times trailing-12-month earnings and 12-times forward earnings. Both metrics rate as conspicuously undervalued relative to the industry. Finally, Otter provides a forward yield of just under 3% against a relatively low payout ratio of 43.57%.
Genie Energy (GNE)
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Headquartered in Newark, New Jersey, Genie Energy (NYSE:GNE) is a domestic retail provider of green and conventional electricity and natural gas supply. As well, it provides on-site and community solar energy solutions, with a focus on deregulated markets across the nation. Thanks to its relevant fundamentals, GNE skyrocketed so far this year, gaining over 71% of equity value.
To be fair, the enormous upside mobility of GNE might not make it everyone’s cup of tea. Let’s face it – utility stocks to buy don’t own a reputation for high-flying share performance. At the same time, the company enjoys stout financials. For instance, Genie carries zero debt on its books. That could come in handy should we encounter choppier-than-expected economic waves.
As well, GNE benefits from strong income-related performances. Both its three-year free cash flow (FCF) growth rate and net margins rank among the underlying sector’s elite firms. Also, the company provides a forward yield of 3.1%.
Energy Company of Minas Gerais (CIG)
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A Brazilian power firm, Energy Company of Minas Gerais (NYSE:CIG) almost certainly does not represent everyone’s cup of tea. For one thing, when faced with global recessionary pressures, it’s probably best for investors to seek shelter at home. Another factor to consider focuses on the CIG’s price point. Trading hands at less than $2 a share, CIG represents one of the speculative ideas among utility stocks to buy.
However, those that don’t mind taking some potshots can take comfort in Energy Company’s financial profile. Primarily, CIG benefits from a strong sales trek, as evidenced by its three-year revenue growth rate of nearly 19%. This ranks above 89% of the competition. Further, the energy specialist’s return on equity pings at 14.45%, reflecting a quality business.
Unlike the other utility stocks to buy on this list, Energy Company presently does not pay a dividend. Still, if you want to roll the dice on a low-price utility, CIG might be your opportunity.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.