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This Sector With Dependable, Big Dividends Likely Will Dodge the Bear Market
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The liquidity party punch bowl is gone and will not be returning any time soon. Profligate and wasteful government spending, and way too much liquidity as rates were kept near or at zero for years, has created an inflation monster, and a Federal Reserve that is way behind the curve had no choice but come out blasting this month. The 75-basis-point increase in the federal funds rate last week is likely to be followed by another one in July, if the spiraling inflation does not start to improve.
While a big Tuesday rally was a welcome relief to investors, the bottom line is that this was likely yet another oversold bear market rally. The reality for investors is that interest rates increases and inflation will continue, and history says it will not be pretty.
Surprisingly, the utilities also were caught up in the selling, losing a stunning 9.2% last week. That may be offering worried investors a sparkling entry point to a sector that typically is considered the proper and safe place for widows and orphans to be. With temperatures around the country spiking higher than usual, you can bet the demand for electricity will jump.
We screened our 24/7 Wall St. utility research database, looking for the top companies that pay big and reliable dividends with stocks rated Buy at top firms across Wall Street. We found seven companies that look like outstanding ideas for worried investors.
American Electric Power
This industry-leading utility is also a solid dividend-paying company. American Electric Power Co. Inc. (NYSE: AEP) is one of the largest electric utilities in the United States, delivering electricity to more than 5.4 million customers in 11 states.
The company ranks among the nation’s largest generators of electricity, owning nearly 38,000 megawatts of generating capacity in the United States. It also owns the nation’s largest electricity transmission system, a more than 40,000-mile network that includes more 765-kilovolt extra-high voltage transmission lines than all other U.S. transmission systems combined.
Many on Wall Street feel that the stock trades at a discount to its utility peers, and they feel it deserves a premium. Top analysts also think the company may sell generating assets and buy back shares with the proceeds, which also will be accretive.
American Electric Power stock investors receive a 3.53% dividend. Morgan Stanley has a $113 price target, while the consensus target is $107.79. Shares closed on Tuesday at $89.95.
Atmos Energy
This utility stock is perfect for conservative investors looking for income. Atmos Energy Corp. (NYSE: ATO) engages in the regulated natural gas distribution and pipeline and storage businesses in the United States.
The Distribution segment is involved in the regulated natural gas distribution and related sales operations in eight states. This segment distributes natural gas to approximately 3 million residential, commercial, public authority and industrial customers. As of September 30, 2021, it owned 71,921 miles of underground distribution and transmission mains.
The Pipeline and Storage segment engages in the pipeline and storage operations. This segment transports natural gas for third parties and manages five underground storage reservoirs in Texas. It also provides ancillary services to the pipeline industry, including parking arrangements, lending and inventory sales. As of September 30, 2021, it owned 5,699 miles of gas transmission lines.
The dividend yield is 2.63%. Morgan Stanley recently lowered its $140 target price on Atmos Energy stock down to $134. That is still well above the $124.88 consensus target and Tuesday’s closing print of $105.47.
Consolidated Edison
This old-school utility stock offers income investors the stability and track record many seek now. Consolidated Edison Inc. (NYSE: ED) offers electric services to approximately 3.5 million customers in New York City and Westchester County; gas to around 1.1 million customers in Manhattan, the Bronx and parts of Queens and Westchester County; and steam to about 1,700 customers in parts of Manhattan.
Consolidated Edison owns 62 area distribution substations and various distribution facilities; 39 transmission substations and 62 area stations; electric generation facilities with an aggregate capacity of 724 megawatts that run on gas and fuel oil; 4,348 miles of mains and 369,791 service lines for natural gas distribution; and one steam-electric generating station and five steam-only generating stations.
The company operates 572 circuit miles of transmission lines; 14 transmission substations; 86,794 in-service line transformers; 3,994 pole miles of overhead distribution lines; and 1,889 miles of underground distribution lines, as well as 1,867 miles of mains and 105,482 service lines for natural gas distribution. In addition, it is involved in the sale and related hedging of electricity to retail customers, and the provision of energy-related products and services to wholesale and retail customers.
Shareholders receive a 3.64% dividend. The $94 Mizuho price target compares with a consensus target of $88.33. Consolidated Edison stock closed on Tuesday at $88.21.
24/7 Wall St.Duke Energy
Located in a growing part of the country this is a very solid idea for investors now. Duke Energy Corp. (NYSE: DUK) is an energy company in the United States that operates through the following segments.
The Electric Utilities and Infrastructure segment generates, transmits, distributes and sells electricity generated from coal, hydroelectric, natural gas, oil, renewable generation and nuclear fuel. It also engages in the wholesale of electricity to municipalities, electric cooperative utilities and load-serving entities. This segment serves approximately 8.2 million customers in six states in the Southeast and Midwest regions of the United States, covering a service territory of approximately 91,000 square miles, and it owns approximately 50,259 megawatts (MW) of generation capacity.
The Gas Utilities and Infrastructure segment distributes natural gas to residential, commercial, industrial and power generation natural gas customers, and it owns, operates and invests in pipeline transmission and natural gas storage facilities. It has approximately 1.6 million customers, including 1.1 million customers in North Carolina, South Carolina and Tennessee, as well as 550,000 customers in southwestern Ohio and northern Kentucky.
The Commercial Renewables segment acquires, owns, develops, builds and operates wind and solar renewable generation projects, including non-regulated renewable energy and energy storage services to utilities, electric cooperatives, municipalities and corporate customers. It has 23 wind, 178 solar and two battery storage facilities, as well as 71 fuel cell locations, with a capacity of 3,554 MW across 22 states.
Investors receive a 4.03% dividend. KeyCorp has set a $121 target price. The consensus target on Duke Energy stock is $116.33, and shares closed on Tuesday at $99.21.
Exelon
This top utility stock also makes good sense now for conservative accounts. Exelon Corp. (NYSE: EXC) engages in the energy generation, delivery, and marketing businesses in the United States and Canada. It owns nuclear, fossil, wind, hydroelectric, biomass and solar generating facilities.
The company also sells electricity to wholesale and retail customers, and it sells natural gas, renewable energy and other energy-related products and services. Furthermore, it is involved in the purchase and regulated retail sale of electricity and natural gas, as well as the transmission and distribution of electricity and distribution of natural gas to retail customers.
The company also offers support services, including legal, human resources, information technology, financial, supply management, accounting, engineering, customer operations, distribution and transmission planning, asset management, system operations and power procurement services. It serves distribution utilities, municipalities, cooperatives and financial institutions, as well as commercial, industrial, governmental and residential customers.
Exelon stock comes with a 3.30% dividend. The target price at J.P. Morgan is $55. The consensus target is $49.65, and shares closed at $41.60 on Tuesday.
Southern Company
This large-cap utility leader makes sense for very conservative accounts. Southern Company (NYSE: SO) engages in the generation, transmission and distribution of electricity. It constructs, acquires, owns and manages power generation assets, including renewable energy and battery energy storage projects. and sells electricity in the wholesale market.
The company distributes natural gas in Illinois, Georgia, Virginia and Tennessee, as well as provides gas marketing services, wholesale gas services and gas pipeline investments operations. It constructs, operates, and maintains 75,924 miles of natural gas pipelines and 14 storage facilities with total capacity of 157 Bcf to provide natural gas to residential, commercial and industrial customers.
The company serves approximately 8.6 million electric and gas utility customers. It also owns or operates 30 hydroelectric generating stations, 24 fossil fuel generating stations, three nuclear-generating stations, 13 combined cycle/cogeneration stations, 44 solar facilities, 13 wind facilities, one fuel cell facility and one battery storage facility. And it provides products and services in the areas of energy efficiency and utility infrastructure. In addition, the company offers digital wireless communications and fiber optics services.
Shareholders receive a 4.16% dividend. KeyCorp’s $71 price target compares with a $68.66 consensus target. Southern Company stock was trading at $67.15 on Tuesday’s close.
24/7 Wall St.Xcel Energy
Conservative investors looking for ideas will like this dependable dividend-paying utility stock. Xcel Energy Inc. (NASDAQ: XEL) generates, purchases, transmits, distributes and sells electricity generated through coal, nuclear, natural gas, hydroelectric, solar, biomass, oil, wood/refuse and wind energy sources. It also purchases, transports, distributes and sells natural gas to retail customers, as well as transports customer-owned natural gas.
In addition, the company develops and leases natural gas pipelines, and storage and compression facilities, and it invests in rental housing projects, as well as procures equipment for the construction of renewable generation facilities. It serves residential, commercial and industrial customers in the portions of Colorado, Michigan, Minnesota, New Mexico, North Dakota, South Dakota, Texas and Wisconsin. The company sells electricity to approximately 3.7 million customers and natural gas to approximately 2.1 million customers.
Investors receive a 3.05% dividend. Xcel Energy stock has a $77 target price at Credit Suisse. The consensus target is $76.29, and the final trade on Tuesday was reported at $64.76.
These seven top utility stocks have Buy ratings, pay very dependable dividends and might be just the place to ride out the storm. The old saying “you can’t fight the fed” works both ways. Even though the market is very oversold, as the rally to start the week showed, the reality is the rate hikes will continue throughout this year and possibly into 2023. So, stocks may continue to struggle until the rate hiking cycle is complete. Hiding in the utility sector is one of the best ideas for those concerned we could take a big leg lower.
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