With macro pressures weighing heavily on market sentiment, investors should play it safe (relatively) with utility stocks to buy. Basically, these energy and resource service providers represent an indelible demand structure. No matter how bad we become as a society, humans have basic needs that must be met.
In addition, utility stocks to be purchased are essentially tied to monopolistic business structures. Unlike other industries, the barrier to entry into this field is incredibly steep. Unless large-scale people plan to live off-grid, they have to pay the company that covers their area. In other words, public services benefit from a hostage public.
Another factor that keeps the lights on for utility stocks to buy centers on the downside trade effect. Typically, consumers facing financial pressures will swap their products or services for increasingly cheaper alternatives. However, in most cases, no alternative exists for public services.
It’s terribly cynical but that’s the deal. So here are seven utility stocks to buy.
|CIGARETTE||Minas Gerais Energy Company||$1.92|
Duke Energy (DUK)
Based in Charlotte, North Carolina, duke energy (NYSE:duke) is an electricity and natural gas holding company. Its electric utilities serve 8.2 million customers in North Carolina, South Carolina, Florida, Indiana, Ohio and Kentucky. Since the beginning of the year, DUK has sold almost 8% of the equity value. While that’s not good, on a relative basis, it’s certainly not bad.
Basically, Duke benefits from migration trends. For example, his home state of North Carolina is an attractive region for young people. More recently, a local newspaper noted that millennials have started flocking to Raleigh. While Duke will always make money, it is also positioned to take advantage of population growth.
Additionally, investors should consider DUK as one of the utility stocks to buy for passive income. Per Dividend.com, the company offers a forward yield of 4.21%. This is above the industry average return of 3.75%. Additionally, the company boasts 17 consecutive years of dividend increases, a status management won’t easily give up.
Dominion Energy (D)
An electric and energy company located in Richmond, Virginia, Dominion Energy (NYSE:D) also benefits from millennial migratory trends. According to its public profile, the company provides electric service 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 long discussions about each of these states and what they offer millennials looking for a lower cost of living. However, I will highlight Utah. On the one hand, Utah attracts young people for more reasonable housing costs. Additionally, the state offers a robust business environment perfect for the booming gig economy.
Similar to Duke above, Dominion ranks as a utility stock to buy because of its passive income potential. Currently, the company offers a forward yield of 4.57%. Again, this is significantly higher than the industry average. Additionally, the payout ratio is 61.41% which, although high, is still reasonable in terms of sustainability.
Sempra Energy (SRE)
Life is not fair and Sempra Energy (NYSE:ERS) (perhaps more than any other utility stock to buy) drives this point home. Based in San Diego, California, Sempra covers the lucrative Southern California market. Like you probably, the Golden State is the economic engine of the United States, with a GDP of $3.3 trillion.
Why is this important for SRE stocks? Well, no matter what the pundits (and politicians) say about people rushing to the exits to safe haven from Arizona, Texas or whatever, California is a coastal state with hot water ports. . Therefore, this state will always be relevant and frankly, will always be most important to the United States.
Logically then, this dynamic gives Sempra incredible leverage. The company’s main consumers (generally speaking) are wealthier than average. So people have no choice but to pay. No one said you had to like it, but that’s just the harsh reality.
York Water (YORW)
An investor-owned utility company operating in Pennsylvania, York Water (NASDAQ:YORW) serves an estimated population of 190,000 through approximately 66,000 service connections in 48 municipalities. Admittedly, it’s not the sexiest name among utility stocks to buy (not that this sector attracts that way). However, for slow and steady reliability, few investments rank above YORW.
Indeed, York Water offers a small piece of American history. According to its public profile, the company bears the distinction of being the nation’s oldest investor-owned utility company. It also has the longest consecutive dividend record since 1816. Do you know who POTUS was back then? James Monroe, the fifth president and the last of the founding fathers.
It’s neither here nor there other than to say that management surely wants to keep this prestigious status alive. Currently, York Water has a forward yield of 1.77%. Although below the industry average, its payout ratio of 54.52% makes the dividends more sustainable than others.
Otter Tail (OTTR)
For the last three ideas among utility stocks to buy, I’m going to take the road less traveled, starting with otter tail (NASDAQ:OTTR). Minnesota-based Otter Tail is an energy company that serves at least 423 retail cities and supplies electricity to approximately 14 municipal utilities. Year-to-date, OTTR has fallen over 21% in equity value, making it a risky idea.
However, opposites could see an upside opportunity with OTTR. Primarily, the company is benefiting from strong P&L metrics. For example, its three-year revenue growth rate is 7.6%, higher than the competition’s 63%. Moreover, its net margin reaches almost 20%, which ranks better than almost 85% compared to its peers.
If that wasn’t enough, the OTTR is trading at 7.9 times trailing 12-month earnings and 12 times forward earnings. Both metrics are significantly undervalued relative to the industry. Finally, Otter offers a forward yield of just under 3% against a relatively low payout rate of 43.57%.
Energy Engineering (GNE)
Based in Newark, New Jersey, Energy Engineering (NYSE:LARP) is a national retail provider of green and conventional electricity and natural gas. Additionally, it provides onsite and community solar power solutions, with a focus on deregulated markets across the country. Thanks to its relevant fundamentals, GNE has soared so far this year, gaining more than 71% in equity value.
To be fair, GNE’s massive upside mobility might not make it everyone’s cup of tea. Let’s face it – buy-to-play utility stocks aren’t known for their stellar performance. At the same time, the company enjoys strong finances. For example, Genie has no debt on its books. This could be useful if we encounter more choppy economic waves than expected.
In addition, GNE is benefiting from good revenue-related performance. Its three-year free cash flow (FCF) growth rate and net margins rank among the elite companies in the underlying industry. In addition, the company offers a forward yield of 3.1%.
Minas Gerais Energy Company (CIG)
A Brazilian electricity company, Minas Gerais Energy Company (NYSE:CIGARETTE) is certainly not everyone’s cup of tea. On the one hand, in the face of the pressures of the global recession, it is probably best for investors to take refuge at home. Another factor to consider focuses on the price of the CIG. Trading at less than $2 per share, CIG represents one of the speculative ideas to buy among utility stocks.
However, those who don’t mind taking a beating can take comfort in Energy Company’s financial profile. CIG primarily benefits from a strong commercial track record, as evidenced by its three-year revenue growth rate of nearly 19%. This ranks above 89% of the competition. In addition, the return on equity of the energy specialist amounts to 14.45%, reflecting quality activity.
Unlike other utility stocks to buy on this list, Energy Company currently pays no dividends. Still, if you want to roll the dice on a low-cost utility, CIG might be your opportunity.
As of the date of publication, Josh Enomoto had no position (directly or indirectly) in the securities mentioned in this article. The opinions expressed in this article are those of the author, subject to InvestorPlace.com Publication guidelines.