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4 Utilities That Beat the S&P 500 Mark Comfortably YTD

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The novel coronavirus outbreak continues to be the dominant issue in the global financial space this year. Various degrees of lockdown to curb the virus spread are having an unprecedented impact on the global economy. According to Fitch Ratings, the annual decline in global GDP in 2020 will be 4.4%, marginally lower than 4.6% decline expected in June. Since the novel coronavirus is yet to be contained, Fitch Ratings expects that economic recovery will be slow. The economy is not expected to improve to pre-virus levels before fourth-quarter 2021 in the United States.

In such a scenario, investors may look out for safe-haven stocks that assure steady returns. The Zacks Utilities is one such sector that provides basic electric, water and gas services, and is guarded against economic ups and downs. Extended lockdown has lowered demand for utility services from the commercial and industrial (C&I) group of customers, which to a great extent was offset by higher demand from the residential group due to extended stay-at-home directives.

Increasing unemployment, a few U.S. states’ decision to still keep operations paused and no clear directives about the availability of vaccine are resulting in uncertainty, which in turn is impacting the market. In such a scenario, stocks from stable sectors like Utilities are becoming more appealing.

Utilities are Safe Investment Options

Domestic-focused capital intensive, highly-regulated Utilities continue to perform steadily amid the unprecedented economic crisis. The utilities also helped customers in financial distress by ensuring 24x7 services despite non-payment of dues.

Ongoing investment to strengthen infrastructure has allowed them to restore services quickly even after getting impacted by an ‘extremely active Atlantic hurricane season in 2020’, per Colorado State University.

Stable earnings and cash flow allow utilities to reward shareholders with regular dividends and thus makes them attractive to investors. Currently, the sector’s dividend yield is 3.87%, better than the S&P 500 composite’s 1.66%

4 Outperformers

We have picked a few stocks from the sector that have returned more than the Zacks S&P 500 composite’s 5.6% growth year to date. These stocks carry a Zacks Rank #3 (Hold) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

These companies pay regular dividends to shareholders. Also, all the companies’ trailing 12 months’ return on equity is better than the sector’s average of 7.8%. We have added some more criteria for the selection of utilities from our proprietary Zacks Stock Screener

Price Performance (YTD Period)

NextEra Energy Inc. (NEE - Free Report) is a public utility holding company engaged in the generation, transmission, distribution and sale of electric energy. The company serves nearly 10 million people through approximately 5 million customer accounts.

Year to Date Return =14.76%
Dividend Yield =2.02%
Long-Term Earnings Growth (three to five years) = 7.97%
Return of Equity = 10.55%
Estimate Movement =The Zacks Consensus Estimate for 2020 earnings has moved up 0.3% to $9.13 in the past 60 days.

Xcel Energy (XEL - Free Report) and its subsidiaries are engaged in providing utility services to customers. The company aims at providing carbon-free electricity to customers by 2050.

Year to Date Return =8.85%
Dividend Yield =2.49%
Long-Term Earnings Growth (three to five years) = 5.93%
Return of Equity = 10.56%
Estimate Movement =The Zacks Consensus Estimate for 2020 earnings has moved up 0.4% to $2.78 in the past 60 days.

E.ON SE (EONGY - Free Report) provides power and gas distribution to customers in Germany, the United Kingdom, Sweden, the rest of Europe, and internationally.

Year to Date Return =9.09%
Dividend Yield =3.24%
Long-Term Earnings Growth (three to five years) = 6.52%
Return of Equity = 11.97%
Estimate Movement =The Zacks Consensus Estimate for 2020 earnings has moved up 11.1% to 70 cents in the past 60 days.

American Water Works (AWK - Free Report) provides essential water and wastewater services to more than 15 million customers. The company continues to expand operations through acquisitions and organic means, and has plans to invest $20-$22 billion in the next decade to strengthen its infrastructure.

Year to Date Return =14.59%
Dividend Yield =1.56%
Long-Term Earnings Growth (three to five years) = 8.08%
Return of Equity = 10.79%
Estimate Movement =The Zacks Consensus Estimate for 2020 earnings has been unchanged in the past 60 days.

These Stocks Are Poised to Soar Past the Pandemic

The COVID-19 outbreak has shifted consumer behavior dramatically, and a handful of high-tech companies have stepped up to keep America running. Right now, investors in these companies have a shot at serious profits. For example, Zoom jumped 108.5% in less than 4 months while most other stocks were sinking.

Our research shows that 5 cutting-edge stocks could skyrocket from the exponential increase in demand for “stay at home” technologies. This could be one of the biggest buying opportunities of this decade, especially for those who get in early.

See the 5 high-tech stocks now>>