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5 Utility Stocks to Invest in for a Stable Portfolio in 2024
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Wall Street is likely to finish 2023 on an impressive note. This year’s rally is primarily owing to the blockbuster performance of growth sectors like technology, communication services and consumer discretionary. These sectors suffered the most last year due to an extremely high market interest rate.
The cyclical sectors like industrials, financials and materials have also performed reasonably well this year. However, defensive sectors such as utilities, consumer staples and health care suffered in 2023. The utilities sector suffered the most with a year-to-date decline of 10.2%.
We are not out of the woods as the Fed has yet to give any signal that the ongoing rate hike cycle has ended. Moreover, market participants also remain concerned regarding an earnings slowdown in fourth-quarter 2023.
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 will always be in 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). These companies generally provide a good dividend. Investment in low-beta stocks with a high dividend yield and a favorable Zacks Rank may be the best option if volatility persists in early 2024.
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 good potential for 2024 and have seen positive earnings estimate revisions within the last 30 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
American Water Works Co. Inc. (AWK - Free Report) is gaining from the implementation of new water systems and contributions from military contracts. Investments to upgrade its infrastructure will allow AWK to provide quality services to its expanding customer base.
AWK continues to expand operations through organic and inorganic initiatives. Cost management is boosting margins. Our model projects an increase in revenues for the 2023-2025 period.
American Water Works Co. has an expected revenue and earnings growth rate of 2.2% and 7.1%, respectively, for next year. The Zacks Consensus Estimate for next-year earnings has improved 0.2% over the last 30 days. AWK has a beta of 0.65 and a current dividend yield of 2.12%.
Vistra Corp. (VST - Free Report) operates as an integrated retail electricity and power generation company. VST operates through six segments: Retail, Texas, East, West, Sunset, and Asset Closure. VST is involved in electricity generation, wholesale energy purchases and sales, commodity risk management, fuel production, and fuel logistics management activities. VST retails electricity and natural gas to residential, commercial, and industrial customers across 20 states in the United States and the District of Columbia.
Vistra has an expected revenue and earnings growth rate of 11% and 23%, respectively, for next year. The Zacks Consensus Estimate for next-year earnings has improved 0.2% over the last seven days. VST has a beta of 0.92 and a current dividend yield of 2.27%.
OGE Energy Corp. (OGE - Free Report) is the largest electric utility in Oklahoma, with an aggressive investment plan worth $4.75 billion during 2023-2027 to upgrade its infrastructure and provide seamless services to its customers. Apart from bolstering customer growth, such investment strategies will also enable OGE to continue to increase its dividend. Our model suggests earnings growth of 5.7% over the 2024-2025 period for OGE.
OGE Energy has an expected revenue and earnings growth rate of 22.8% and 5.3%, respectively, for next year. The Zacks Consensus Estimate for next-year earnings has improved 0.5% over the last 30 days. OGE has a beta of 0.71 and a current dividend yield of 4.71%
Sempra Energy (SRE - Free Report) is an energy services holding company involved in the sale, distribution, storage and transportation of electricity and natural gas. SRE also invests in, develops and operates energy infrastructure.
Outside North America, SRE boasts a strong and growing presence in Mexico, through a diverse portfolio of energy infrastructure projects and assets serving its growing energy need.
Sempra Energy has an expected revenue and earnings growth rate of 2.2% and 5.9%, respectively, for next year. The Zacks Consensus Estimate for next-year earnings has improved 0.2% over the last 30 days. SRE has a beta of 0.72 and a current dividend yield of 3.25%.
CenterPoint Energy Inc. (CNP - Free Report) is a domestic energy delivery company that provides electric transmission & distribution, natural gas distribution and competitive natural gas sales and services operations.
CNP maintains the wires, poles and electric infrastructure serving more than 2.5 million metered customers in the greater Houston area and in southwestern Indiana. CNP also owns and operates nearly 1,300 megawatts of electric generation capacity in Indiana.
CenterPoint Energy has an expected revenue and earnings growth rate of 1.7% and 8.1%, respectively, for next year. The Zacks Consensus Estimate for next-year earnings has improved 0.1% over the last 30 days. CNP has a beta of 0.89 and a current dividend yield of 2.78%.
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5 Utility Stocks to Invest in for a Stable Portfolio in 2024
Wall Street is likely to finish 2023 on an impressive note. This year’s rally is primarily owing to the blockbuster performance of growth sectors like technology, communication services and consumer discretionary. These sectors suffered the most last year due to an extremely high market interest rate.
The cyclical sectors like industrials, financials and materials have also performed reasonably well this year. However, defensive sectors such as utilities, consumer staples and health care suffered in 2023. The utilities sector suffered the most with a year-to-date decline of 10.2%.
We are not out of the woods as the Fed has yet to give any signal that the ongoing rate hike cycle has ended. Moreover, market participants also remain concerned regarding an earnings slowdown in fourth-quarter 2023.
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 will always be in 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). These companies generally provide a good dividend. Investment in low-beta stocks with a high dividend yield and a favorable Zacks Rank may be the best option if volatility persists in early 2024.
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 good potential for 2024 and have seen positive earnings estimate revisions within the last 30 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
American Water Works Co. Inc. (AWK - Free Report) is gaining from the implementation of new water systems and contributions from military contracts. Investments to upgrade its infrastructure will allow AWK to provide quality services to its expanding customer base.
AWK continues to expand operations through organic and inorganic initiatives. Cost management is boosting margins. Our model projects an increase in revenues for the 2023-2025 period.
American Water Works Co. has an expected revenue and earnings growth rate of 2.2% and 7.1%, respectively, for next year. The Zacks Consensus Estimate for next-year earnings has improved 0.2% over the last 30 days. AWK has a beta of 0.65 and a current dividend yield of 2.12%.
Vistra Corp. (VST - Free Report) operates as an integrated retail electricity and power generation company. VST operates through six segments: Retail, Texas, East, West, Sunset, and Asset Closure. VST is involved in electricity generation, wholesale energy purchases and sales, commodity risk management, fuel production, and fuel logistics management activities. VST retails electricity and natural gas to residential, commercial, and industrial customers across 20 states in the United States and the District of Columbia.
Vistra has an expected revenue and earnings growth rate of 11% and 23%, respectively, for next year. The Zacks Consensus Estimate for next-year earnings has improved 0.2% over the last seven days. VST has a beta of 0.92 and a current dividend yield of 2.27%.
OGE Energy Corp. (OGE - Free Report) is the largest electric utility in Oklahoma, with an aggressive investment plan worth $4.75 billion during 2023-2027 to upgrade its infrastructure and provide seamless services to its customers. Apart from bolstering customer growth, such investment strategies will also enable OGE to continue to increase its dividend. Our model suggests earnings growth of 5.7% over the 2024-2025 period for OGE.
OGE Energy has an expected revenue and earnings growth rate of 22.8% and 5.3%, respectively, for next year. The Zacks Consensus Estimate for next-year earnings has improved 0.5% over the last 30 days. OGE has a beta of 0.71 and a current dividend yield of 4.71%
Sempra Energy (SRE - Free Report) is an energy services holding company involved in the sale, distribution, storage and transportation of electricity and natural gas. SRE also invests in, develops and operates energy infrastructure.
Outside North America, SRE boasts a strong and growing presence in Mexico, through a diverse portfolio of energy infrastructure projects and assets serving its growing energy need.
Sempra Energy has an expected revenue and earnings growth rate of 2.2% and 5.9%, respectively, for next year. The Zacks Consensus Estimate for next-year earnings has improved 0.2% over the last 30 days. SRE has a beta of 0.72 and a current dividend yield of 3.25%.
CenterPoint Energy Inc. (CNP - Free Report) is a domestic energy delivery company that provides electric transmission & distribution, natural gas distribution and competitive natural gas sales and services operations.
CNP maintains the wires, poles and electric infrastructure serving more than 2.5 million metered customers in the greater Houston area and in southwestern Indiana. CNP also owns and operates nearly 1,300 megawatts of electric generation capacity in Indiana.
CenterPoint Energy has an expected revenue and earnings growth rate of 1.7% and 8.1%, respectively, for next year. The Zacks Consensus Estimate for next-year earnings has improved 0.1% over the last 30 days. CNP has a beta of 0.89 and a current dividend yield of 2.78%.