Even though the utility sector has totally blown away other S&P 500 sectors this year, and many of the stocks in the sector are very pricey, the run may not be over. Some of the top companies could not only post great numbers, but they could be poised for a continued move higher. One thing is for sure, interest rates appear to be going nowhere, and while they recently bounced off multi-generational lows, the increases are barely noticeable.

A new Merrill Lynch research report highlights three top companies that analyst Brian Chin remains very positive on. He thinks that all three are good buys into the second-quarter earnings print, and all remain rated Buy at the firm.

NextEra Energy

With a very strong balance sheet, NextEra Energy Inc. (NYSE: NEE) is poised for a solid second half of 2016. It is a leading clean energy company with consolidated revenues of over $17.0 billion, and approximately 44,900 megawatts of generating capacity, which includes megawatts associated with noncontrolling interests related to NextEra Energy Partners.

Headquartered in Juno Beach, Florida, NextEra Energy’s principal subsidiaries are Florida Power & Light, which serves approximately 4.8 million customer accounts in Florida and is one of the largest rate-regulated electric utilities in the United States, and NextEra Energy Resources, which, together with its affiliated entities, is the world’s largest generator of renewable energy from the wind and sun.

NextEra is also one of the Merrill Lynch top picks for the third quarter. The analysts feel the company may very well be one of the top total return plays out of the large cap regulated space in the sector. However, it was just announced that the company’s proposed takeover of Hawaiian Electric Industries was rejected by regulatory authorities, after nearly two years since its initial filing. The rejection has led the parties to call off the merger.

Shareholders receive a 2.71% dividend. The Merrill Lynch price target for the stock is $144, and the Wall Street consensus target is $133.94. The stock closed Monday at $128.25.

Black Hills

This is another top company that the analyst likes before the earnings release. Black Hills Corp. (NYSE: BKH) operates as a diversified energy company in the United States. Its Electric Utilities segment generates, transmits and distributes electricity to approximately 207,200 electric customers in South Dakota, Wyoming, Colorado and Montana, and it distributes natural gas to approximately 44,200 gas utility customers in Cheyenne, Wyoming. This segment owns 841 megawatts of generation capacity and 8,703 miles of electric transmission and distribution lines.

The Gas Utilities segment distributes natural gas to approximately 547,300 natural gas utility customers in Colorado, Nebraska, Iowa and Kansas. This segment owns 645 miles of intrastate gas transmission pipelines and 19,494 miles of gas distribution mains and service lines.

The company’s Power Generation segment produces electric power and sells the electric capacity and energy primarily to its utilities under long-term contracts, and the Coal Mining segment produces coal at its coal mine located near Gillette, Wyoming, and sells the coal to electric generation facilities.

Lastly, the Oil and Gas segment explores, develops and produces crude oil and natural gas primarily in the Rocky Mountain region. This segment’s principal assets include the operating interests in the properties in the San Juan basin, the Powder River basin and the Piceance basin, as well as non-operated interests in wells located in various states. As of December 31, 2015, the company had total reserves of approximately 105 billion cubic feet equivalent of natural gas, crude oil and natural gas liquids. This diversification keeps Black Hills as a top pick.

Black Hills shareholders receive a 2.68% dividend. The $67 Merrill Lynch price target compares with the consensus target of $66.40. The shares closed most recently at $62.67.

FirstEnergy

This is a higher yielding utility stock for accounts needing income but worried about the current environment. FirstEnergy Corp. (NYSE: FE) is a diversified energy company dedicated to safety, reliability and operational excellence. Its 10 electric distribution companies form one of the nation’s largest investor-owned electric systems, serving customers in Ohio, Pennsylvania, New Jersey, West Virginia, Maryland and New York. Its transmission subsidiaries operate more than 24,000 miles of transmission lines that connect the Midwest and Mid-Atlantic regions.

FirstEnergy is making significant upgrades to the infrastructure of some of its top holdings. Pennsylvania Electric is spending nearly $11 million for infrastructure improvements, which include rehabilitating and replacing power lines and installing remote-controlled devices and more durable protective devices on wires. The improvements are in an effort to help avoid customer disruptions.

Metropolitan Edison Company is starting work on $7 million of similar projects. While Potomac Edison is investing $5 million in building a 14.5-mile power line carrying a capacity of 34.5 kilovolt to minimize the number of affected customers in case of service disruptions. Potomac is also constructing a new substation consisting of three transformers with construction expected to be complete by 2017.

FirstEnergy investors receive a 3.97% dividend. Merrill Lynch has a $39 price target. The consensus estimate is $36.13, but the stock closed Monday at $36.29.

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While the sector is clearly pricey, these three top companies are well-diversified and make sense for more conservative portfolios. They also offer continued safety for investors with an aversion to volatility.

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