Utilities provide electricity, natural gas, and water and wastewater services to residential, commercial, industrial, and government customers. Utility stocks are generally stable investments. Demand for utility services tends to remain constant, even during a recession. The rates they charge to provide these services are either regulated (approved by a government agency) or contractually guaranteed (not regulated). For this reason, utilities generate reliable earnings that enable them to pay dividends with above-average returns.
With a combination of predictable profitability and income generation, utility stocks are often a good option for defensive investors or retirement strategies. In this article, we present a selection of some utility stocks.
RWE & E.ON
- Company: RWE AG
- Symbol (TWS): RWE
- ISIN: DE0007037129
- Stock exchange: XETRA
- Country: Germany
- Currency: EUR
- Market capitalization: EUR 20.91 billion / USD 24.26 billion
- Sales (TTM) in USD: 15.75 billion
- Company: E.ON SE
- Symbol (TWS): EOAN
- ISIN: DE000ENAG999
- Stock exchange: XETRA
- Country: Germany
- Currency: EUR
- Market capitalization: EUR 27.43 billion / USD 31.83 billion
- Sales (TTM) in USD: 64.22 billion
In Germany, E.ON and RWE, the most important utility stocks, were once reliable and stable investments. However, political intervention and regulations have made it increasingly difficult for the companies to do business over the last 10 to 15 years, and their share prices have suffered greatly as a result. Both companies are currently trading well below their all-time highs and the shares have lost their standing among investors.
Enel
- Company: Enel SpA
- Symbol (TWS): ENEL
- ISIN: IT0003128367
- Stock exchange: Italian Stock Exchange (Borsa Italiana)
- Country: Italy
- Currency: EUR
- Market capitalization: EUR 69.41 billion / USD 80.52 billion
- Sales (TTM) in USD: 60.49 billion
The chart of the Italian utility Enel, on the other hand, looks more promising. In 2021, the highs from previous years and the all-time high from 2007 could be exceeded. The company's outlook is also optimistic. By 2030, 160 billion euros are to be invested, especially in renewable energies.
Lyxor Stoxx Europe 600 Utilities ETF
For a broadly diversified investment in European utility stocks, a sector ETF is also an option. The Lyxor Stoxx Europe 600 Utilities ETF aims to track the STOXX Europe 600 Utilities sector index. The above-mentioned companies such as Enel, RWE and E.ON are also included in the index.
American Water Works
- Company: American Water Works Company Inc
- Symbol (TWS): AWK
- ISIN: US0304201033
- Stock Exchange: New York Stock Exchange
- Country: USA
- Currency: US Dollar
- Market capitalization: USD 30.77 billion
- Sales (TTM) in USD: 3.89 billion
American Water Works is the largest publicly traded water and wastewater utility in the USA. The company makes most of its money from providing regulated water and wastewater services.
American Water Works projects earnings per share (EPS) to grow by 7 % to 10 % annually between 2021 and 2025, which would make it one of the fastest-growing utilities in the U.S. The main reason for this outlook is a multi-billion investment program. to expand regulated operations.
Thanks to its top-notch financial profile, the water utility has the financial flexibility to implement its expansion plan. Rating agency S&P Global gives American Water Works an A credit rating, making it one of the few utilities to achieve this top level.
At the same time, the company has a very conservative dividend payout ratio (averaging between 50 % and 60 % of adjusted earnings per share). This strong financial profile has also led American Water Works to forecast dividend growth of 7 to 10 % per year through 2025.
NextEra Energy
- Company: NextEra Energy Inc
- Symbol (TWS): NEE
- ISIN: US65339F1012
- Stock Exchange: New York Stock Exchange
- Country: USA
- Currency: US Dollar
- Market capitalization: USD 157.31 billion
- Sales (TTM) in USD: 16.83 billion
Another interesting utility stock from the USA is NextEra Energy. The company operates as an electric utility in Florida. In addition, NextEra Energy owns and operates natural gas pipelines and renewable energy projects that generate predictable revenues through long-term fixed-rate contracts. NextEra expects these businesses to generate average annual EPS growth of 6 % to 8 % through 2023. In contrast, growth forecasts for peers in the electric utility sector are in the low to mid-single digits.
This above-average growth forecast comes from a strong financial profile that allows financing of high-yield expansion opportunities. The dividend payout ratio has historically been below the industry average. Due to the lower payout ratio, NextEra plans to increase its dividend by approximately 10 % per year until at least 2022.