Yahoo Finance 5 Utility Stocks to Buy as Volatility Grips Wall Street
Volatility has reappeared on Wall Street following market participants' concerns about a higher interest regime for a longer period and the possibility of a recession in 2023. The welcome rally of U.S. stocks that we have seen since the beginning of January to mid-February is fading out gradually.
Wall Street is currently in a “Catch 22 Situation.” Strong economic data will ensure solid fundamentals of the U.S. economy. On the other hand, it will give the Fed a reason to continue its aggressive rate hike and monetary tightening to combat inflation. At this stage, it should be fruitful to invest in defensive stocks like utilities 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. It's because these 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 market’s downturn continues, low-beta stocks will minimize portfolio losses and dividend payment 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 in the past three months.
Image Source: Zacks Investment Research
NiSource Inc. NI 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 6.4% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 0.6% over the last 30 days. NI has a beta of 0.48 and a current dividend yield of 3.71%.
Xcel Energy Inc. XEL is well poised to benefit from its long-term investment and renewable power generation. XEL’s expanding electric and natural gas customer base along with the enforcement of new rates act as its key tailwinds. Xcel Energy has plans to become carbon neutral by 2050. XEL has been paying dividends on a regular basis, thus enhancing its shareholder value. Also, it has sufficient liquidity to meet its near-term obligations.
Xcel Energy has an expected earnings growth rate of 6.3% for the current year. The Zacks Consensus Estimate for current-year earnings improved 0.3% over the last 30 days. XEL has a beta of 0.41 and a current dividend yield of 2.90%.
MGE Energy Inc. MGEE operates as a public utility holding company primarily in Wisconsin. MGEE operates through five segments: Regulated Electric Utility Operations, Regulated Gas Utility Operations, Nonregulated Energy Operations, Transmission Investments, and All Other.
MGE Energy generates, purchases, and distributes electricity, owns or leases electric generation facilities and plans, constructs, operates, maintains, and expands transmission facilities to provide transmission services.
MGE Energy has an expected earnings growth rate of 11.5% for the current year. The Zacks Consensus Estimate for current-year earnings improved 1.4% over the last 30 days. MGEE has a beta of 0.71 and a current dividend yield of 2.30%.
MDU Resources Group Inc. MDU is a utility natural gas distribution company. MDU provides value-added natural resource products and related services that are essential for energy transportation, regulated energy delivery and construction materials and services business.
MDU Resources operates through regulated energy delivery platform and construction materials and services platform. The two-platform strategy helps to balance out seasonality-related risks. MDU has five reportable business segments - Electric, Natural gas distribution, Pipeline, Construction materials and contracting, and Construction services.
MDU Resources has an expected earnings growth rate of 13.9% for the current year. The Zacks Consensus Estimate for current-year earnings improved 0.1% over the last 60 days. MDU has a beta of 0.74 and a current dividend yield of 2.85%.
Ameren Corp. AEE has projected solid infrastructure investments of more than $45 billion in the 2022-2031 period. AEE’s growth has been led by its consistent investments and the company expects to spend up to $17.3 billion to support system reliability and infrastructural upgrades in the 2022-2026 period. Ameren has targeted to expand its renewables portfolio by adding 2,400 megawatts of renewable generation by the end of 2030.
Ameren has an expected earnings growth rate of 5.1% for the current year. The Zacks Consensus Estimate for current-year earnings improved 0.1% over the last 30 days. AEE has a beta of 0.41 and a current dividend yield of 2.74%.
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Ameren Corporation (AEE) : Free Stock Analysis Report
Xcel Energy Inc. (XEL) : Free Stock Analysis Report
NiSource, Inc (NI) : Free Stock Analysis Report
MDU Resources Group, Inc. (MDU) : Free Stock Analysis Report
MGE Energy Inc. (MGEE) : Free Stock Analysis Report
