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3 Utility Stocks to Consider for Steady Income Stream

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Investors get return on their investment in stocks through regular dividend, bonus shares and share price appreciation. For a steady stream of income, investors can strengthen their position in defensive, matured, regulated and domestic-focused utility companies. Utility companies are known for their ability to distribute dividend at regular intervals.

The Utility space includes companies that provide electricity, water and natural gas to millions of customers across the United States. Demand for utility services tend to remain unchanged even during turbulent economic conditions. The pandemic in 2020 lowered the demand for utility services from the commercial and industrial (C&I) customer group. However, stay-at-home directives increased residential demand that offset a portion of demand decline from the C&I group.

The recent release from the U.S. Energy Information Administration (“EIA”) forecasts demand for electricity to increase 1.3% in 2021 from 2020 levels. The increase in electricity demand will be a result of expected colder temperatures in the first quarter than the same period last year. Even with the gradual rollout of vaccines, domestic demand is expected to be high, as many people will still be at home to avoid infection.

In the current near-zero interest rate environment, these matured utilities can be considered as bond substitutes due to its ability to pay steady dividend.  Utilities continue to make capital investments to strengthen their infrastructure, which in turn helps them provide uninterrupted services to customers. Rate increases at regular intervals by the commission and regulatory authorities ensure steady income for the utilities. Consistent demand contributes toward steady performance of utilities and the companies tend to have strong cash flows that are distributed among shareholders as dividend.

Selection of Utilities

Historical dividend payment should not be the only criteria to select the utilities as it does not guarantee future dividend payment. We have selected utilities based on their dividend yield, earnings growth expectation for 2021 and future capital expenditure plans that ensure steady performance. All the selected utilities have a market capital of more than $20 billion. Moreover, these stocks have returned more than the Zacks Utility – Electric Power industry in the past six months.

Price Performance (Six Months)

 

Charlotte, NC-based Duke Energy Corporation (DUK - Free Report) has a wide portfolio of electric and natural gas, along with regulated and unregulated businesses that supply, deliver and process energy in North America, as well as select international markets. It currently carries a Zacks Rank #3 (Hold) and has a market capitalization of $67.39 billion. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The company intends to invest $58 billion during the 2020-2024 time period to strengthen its infrastructure and expand the renewable power generation portfolio. Its current dividend yield of 4.22% is better than the industry level of 3.35% and Zacks S&P 500 composite group’s average of 1.48%.

The Zacks Consensus Estimate for Duke Energy’s 2021 earnings of $5.22 per share has increased 0.2% in the past 30 days. The stock has gained 17.3% over the past six months compared with the industry’s rally of 12.9%.

Detroit, MI-based DTE Energy Company (DTE - Free Report) is a holding company, with subsidiaries engaged in regulated and unregulated energy businesses. It current has a Zacks Rank #2 (Buy) and a market capitalization of $23.5 billion.

The company intends to invest $17 billion during the 2021-2025 time period to strengthen its infrastructure and expand its portfolio. Its current dividend yield is 3.6%.

The Zacks Consensus Estimate for DTE Energy’s 2021 earnings of $7 per share has increased 0.2% in the past 60 days. The stock has gained 14% over the past six months.

Rosemead, CA based Edison International (EIX - Free Report) — through its subsidiaries — engages in the generation, transmission, and distribution of electricity in the United States. The company generates electricity through hydroelectric, diesel/liquid petroleum gas, natural gas, nuclear and photovoltaic sources. It currently has a Zacks Rank #2 and a market capitalization of $23.8 billion.

The company intends to invest $21.2 billion during the 2020-2023 time period to strengthen its infrastructure and expand its portfolio. Its current dividend yield is 4.22%.

The Zacks Consensus Estimate for DTE Energy’s 2021 earnings of $4.47 per share has increased 0.5% in the past 60 days. The stock has gained 14.7% over the past six months.

Zacks Top 10 Stocks for 2021

In addition to the stocks discussed above, would you like to know about our 10 top tickers for the entirety of 2021?

These 10 are painstakingly hand-picked from over 4,000 companies covered by the Zacks Rank. They are our primary picks to buy and hold. Start Your Access to the New Zacks Top 10 Stocks>>

 


In-Depth Zacks Research for the Tickers Above


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Edison International (EIX) - free report >>

DTE Energy Company (DTE) - free report >>

Duke Energy Corporation (DUK) - free report >>