Volatility has reappeared on Wall Street following market participants concerns about a recession in late 2023. Last week was disappointing for Wall Street. The three major stock indexes — the Dow, the S&P 500 and the Nasdaq Composite — fell 0.2%, 0.1% and 0.4%, respectively. The blue-chip index ended a four-week winning streak. Fears of a near-term economic downturn dented investors’ confidence in risky assets like equities.
Wall Street is currently in a “Catch 22 Situation.” Weak economic and earnings data will indicate that the Fed’s aggressive interest rate hike policy for more than a year has started giving fruitful results. On the other hand, this will also indicate a slowdown in economic activities. In the March FOMC statement, Fed Chairman Jerome Powell also warned of a recession in late 2023.
At this stage, it should be prudent to invest in defensive stocks like utilities with a favorable Zacks Rank to strengthen your portfolio.
Utilities Immune to Vagaries of Economic Cycle
The Utilities sector is mature and fundamentally strong as demand for such services is generally immune to the changes in the economic cycle. Such companies provide basic services like electricity, gas, water and telecommunications, which can never go out of demand.
Consequently, adding stocks from the utility basket usually lends more stability to a portfolio in an uncertain market condition. Moreover, the sector is known for the stability and visibility of its earnings and cash flows. Stable earnings enable utilities to pay out consistent dividends that make them more attractive to income-oriented investors.
Utility companies enjoy a reputation for being safe given the regulated nature of their business. This lends their revenues a high level of certainty. These companies also benefit from the domestic orientation of their business, which shields them from foreign currency translation issues.
Additionally, utilities are generally low-beta stocks (beta >0 but <1). At this stage, investment in low-beta stocks with a high dividend yield and a favorable Zacks Rank may be the best option.
If the market’s northbound journey is reestablished, the favorable Zacks Rank of these stocks will capture the upside potential. However, if the market’s downturn continues, low-beta stocks will minimize portfolio losses and dividend payments will act as a regular income stream.
Our Top Picks
We have narrowed our search to five low-beta utility stocks that are regular dividend payers. These stocks have seen positive earnings estimate revisions within the last 60 days. Each of our picks carries a Zacks Rank #2 (Buy). You can see
. the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here
The chart below shows the price performance of our five picks year to date.
Image Source: Zacks Investment Research NiSource Inc. ( NI Quick Quote NI - Free Report) expects to invest $40 billion in the long-term utility infrastructure modernization program. The existing capex plans will further enhance the reliability of natural gas and electric operations, and help the company offer efficient services to NI’s expanding customer base.
NiSource continues to increase its clean power assets. Moreover, nearly 75% of NI’s investment is recovered within 18 months through rate hikes, providing the necessary funds to carry on infrastructure upgrade projects.
NiSource has an expected earnings growth rate of 6.8% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 1.3% over the last 60 days. NI has a beta of 0.47 and a current dividend yield of 3.49%.
New Jersey Resources Corp. ( NJR Quick Quote NJR - Free Report) is an energy services holding company that provides safe and reliable natural gas and clean energy services, including transportation, distribution, asset management and home services. NJR operates through four segments: Natural Gas Distribution, Clean Energy Ventures, Energy Services, and Storage and Transportation.
New Jersey Resources has an expected earnings growth rate of 5.2% for the current year (ending September 2023). The Zacks Consensus Estimate for current-year earnings has improved 3.1% over the last 60 days. NJR has a beta of 0.65 and a current dividend yield of 2.93%.
Atmos Energy Corp. ( ATO Quick Quote ATO - Free Report) continues to benefit from rising demand from its expanding customer base. ATO is planning to invest in the range of $13-$14 billion from fiscal 2022-2026 to increase the reliability of its pipelines and serve customers efficiently. Returns within a year of capital investment continue to boost Atmos Energy’s performance and allow it to pay regular dividends. ATO has enough liquidity to meet near-term debt obligations.
Atmos Energy has an expected earnings growth rate of 7.1% for the current year (ending September 2023). The Zacks Consensus Estimate for current-year earnings has improved 0.2% over the last 60 days. ATO has a beta of 0.62 and a current dividend yield of 2.57%.
Exelon Corp. ( EXC Quick Quote EXC - Free Report) owns and operates transmission and distribution pipelines and provides efficient services to more than 10 million customers. EXC’s long-term investments of $31 billion in grid modernization will improve the resilience of its system.
EXC’s stable cash flow will allow it to pay stable dividends. Revenue decoupling mitigates the impact of load fluctuation and its cost-saving initiatives boost margins. Our model projects an increase in the total revenues in 2023-2025 period.
Exelon has an expected earnings growth rate of 4% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 0.4% over the last seven days. EXC has a beta of 0.61 and a current dividend yield of 3.33%.
Spire Inc. ( SR Quick Quote SR - Free Report) invests systematically to enhance the reliability of operations and efficiently serve an expanding customer base. SR is inclined toward utilizing technologies for advancing operations to improve its service and reduce costs. SR plans to lower methane emissions by 73% within 2035 from the 2005 levels.
Spire has an expected earnings growth rate of 9.1% for the current year (ending September 2023). The Zacks Consensus Estimate for current-year earnings has improved 0.7% over the last 60 days. SR has a beta of 0.49 and a current dividend yield of 4.12%.