It hasn’t been a great year for finding the best utilities stocks to buy.
It has been the sector laggard of the S&P 500 which has grown more swiftly than many expected. That’s a consequence of the explosive growth of AI and a story for another time. The point is, that there’s a contrarian opportunity available in utilities.
Investors tend to flock toward utilities firms for their income. The best utilities stocks to buy provide dividends that equate to reliable growth, making them attractive despite the staid nature of the sector.
However, high bond yields in 2023 have made them much less attractive. Investors have exited the utilities sector in favor of those higher bond yields.
Rates are flattening though, making the utilities sector again one to look at. Also, don’t discount the defensive nature of the sector either. A languishing tech sector will push utilities higher, so these are the best utilities stocks to buy now.
Dominion (D)
Dominion (NYSE:D) is now more heavily concentrated in electricity, after selling several of its natural gas businesses to Enbridge (NYSE:ENB) on Sept. 5 for $9.4 billion.
The sale should make Dominion one of the more attractive utilities stocks to buy for several reasons.
Demand for natural gas is falling as regulators continue to curb its use. It was likely a good decision to jettison the business and redirect the proceeds toward businesses with brighter outlooks. Two, Dominion is now more concentrated in an electricity sector that should see higher prices as EVs and data center-driven demand for electricity increases.
Dominion shares include a relatively high-yield dividend that was last reduced only a few years ago. There’s a lot of potential for Dominion to move upward following the sale and increasing concerns over tech at the moment.
Clearway Energy (CWEN)
Clearway Energy (NYSE:CWEN) is a renewable energy provider with a massive footprint within the space. That footprint includes owning solar, wind and natural gas operations.
The firm owns and operates more than 8 gigawatts of assets. 5.7 gigawatts of which is renewables that offset more than 10.5 million metric tons of carbon emissions annually.
Clearway Energy is risky. That risk is clear because its revenue generation is volatile. Low wind production in Q2 negatively affected the firm’s performance during the period. However, the firm signaled its belief in the business line with agreements to invest in more wind farm projects.
The firm also lowered guidance for the remainder of 2023 in the earnings. Yet, Clearway Energy continues to pay a dividend above 6% with the stated intent to continue to do so through 2026. Thus, the income opportunity makes it attractive and the muted sector prices continue to have rebound potential.
IDACORP (IDA)
IDACORP (NYSE:IDA) is not one of the best-known utilities stocks to buy overall. The Idaho-based utility provides hydroelectricity to its customers and has been doing so for over a century. It also is growing steadily while simultaneously unappreciated and oversold. That’s a nice combination for investors.
Income increased by $4.3 million in Q2 and by more than $14 million in H1 as the company added 13 thousand customers in the most recent quarter. That growth allowed the company to reaffirm previous guidance for the rest of 2023. It suggests that IDACORP will be very steady through 2023 and unlikely to produce any negative surprises.
There’s $20 of upside beyond its current $94 price and a healthy dividend yielding 3.3%. Outside of unpredictable weather, there’s little that could make IDA shares move downward in the foreseeable future. It’s a very steady investment that only lacks in that it’s simply not particularly well known overall. That should change as bond yields fall and things normalize.
NextEra Energy (NEE)
NextEra Energy (NYSE:NEE) stock looks very attractive as attention swings back toward an oversold utilities sector. The company includes the largest electric utility in Florida Power & Light Company. The other part of the business is the world’s largest wind and solar producer, NextEra Energy Resources.
That combination of strengths has made NEE stock one of the more salient firms in the utilities sector, especially regarding its renewables footprint. The opportunity is obvious: There’s 33% upside accounted for in share prices and an additional 2.8% through dividends.
The firm’s fundamentals are sound with revenues and earnings growth that are both very respectable. The firm’s renewables business now provides more revenue than does its electricity utilities business.
Both are in a strong position. The opportunity in renewables isn’t waning. Electricity demand is expected to increase too as factors like EV demand and data center proliferation raise usage. The combination should mean that investors will receive healthy returns from NEE shares moving forward.
DTE Energy (DTE)
DTE Energy (NYSE:DTE) is a diversified utility based in Michigan. It provides electricity to 2.3 million people and provides natural gas to 1.3 million more customers. The firm’s shares have steadily trended downward in 2023 while Wall Street continues to favor them.
The average stock price target for the firm is approximately $124. They currently trade for a price of $102. The dividend yield is approaching 4% so there’s a lot to like.
It’s arguable that DTE has trended down because of sector pressure alone. Q2 earnings reached $201 million, up from $171 million a year earlier. The company isn’t doing poorly. However, factors like bond yields make the income opportunity at DTE less attractive than they would otherwise be in a more predictable environment.
The company definitely offers a lot to investors and its renewables investment makes it more marketable besides the other strengths listed above.
Southern Co. (SO)
Southern Co. (NYSE:SO) stock has swung from the mid $70s to the mid $60s several times this year. It’s now back in the mid $60s again.
Wall Street expects shares to rise again to the mid-70s. Include the dividend yielding above 4% and SO shares become pretty sweet without a lot of risk overall.
One of the biggest risks for the utilities sector is unpredictable weather. A mild season in the Atlanta market that Southern Co. serves can cost the firm. That’s precisely what happened in Q2. The weather was unseasonably mild and people used their AC less. Southern Co.’s revenues fell from $7.2 billion to $5.7 billion. Net income fell from $1.1 billion to $838 million. Still, SO shares suffered little. Investors should buy those shares. The region is growing and the utilities sector has been oversold.
Public Service Energy Group (PEG)
Public Service Energy Group (NYSE:PEG) is a highly profitable multi-utilities stock worth snapping up right now. The firm’s margins are all in the top 10-15% relative to its peers. That’s a clear indication that the company is well run and the margins alone arguably make it investment worthy.
Public Service Energy Group is also incredibly steady. Earnings are at or slightly above expectations for the last several quarters. However, it’s also likely easy money for investors at present. Shares have 10% upside and the dividend yields nearly 4%. That’s a nice return that’s highly likely to materialize
The company recently reaffirmed its 2023 earnings forecast. That suggests that forecasts from Wall Street regarding share prices are likely to become reality. Investors should pivot back into utilities for all of the reasons explained earlier. It all means PEG shares make sense at the moment.
On the date of publication, Alex Sirois 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.