10 best utility stocks for the rest of 2022

Income investors like utility stocks for their stability and generous dividends. Here are 10 top-rated ones to watch amid a turbulent market.

  • By Jeff Reeves,
  • Kiplinger
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When investors think of lower-risk investments, utility stocks typically spring to mind for many of us. That's because electricity is a modern necessity right alongside food and water. Consumers will cut back on just about every discretionary category before they stop heating their homes or turning on lights in the evening.

It also helps that most utilities are highly regulated by state or federal policymakers. This makes it challenging for competitors to pop up and offer significantly lower rates that would disrupt the state of play. In fact, the U.S. is in many ways a patchwork of regional monopolies that just happen to be publicly traded!

And in a volatile environment like Wall Street has seen so far in 2022, utility stocks have been one of the few corners of the market that have shown resilience.

Consider that the Utilities Select Sector SPDR Fund (XLU), the largest utility sector-focused exchange-traded fund (ETF) out there with some $15 billion in assets, is flat for the year-to-date in 2022. Pretty impressive when you consider that the S&P 500 (.SPX) is down about 18% since Jan. 1, and the Nasdaq is off almost 27%.

What's more, some of the strongest utility stocks out there have tacked on significant gains.

As the world continues to deal with uncertainty on multiple fronts, from rising interest rates to record inflation to the terrible conflict in Ukraine, utility stocks are very likely to remain in favor going forward thanks to their defensive nature.

That said, here are 10 of the best utility stocks for 2022. If you're looking for low-risk plays that can benefit from an entrenched customer base and wide moats, these companies are worth a look. What's more, they are among the highest-rated utility stocks as we head toward the second half of a turbulent year.

Data is as of May 18. Dividend yields are calculated by annualizing the most recent payout and dividing by the share price. Analyst ratings and estimates are courtesy of S&P Global Market Intelligence.

Dominion Energy

  • Market value: $67.1 billion
  • Dividend yield: 3.2%
  • Analysts' ratings: 8 Strong Buy, 3 Buy, 6 Hold, 1 Sell, 0 Strong Sell
  • Analysts' consensus recommendation: 2.00 (Buy)

Dominion Energy (D) is the largest of the utility stocks on this list: A $67 billion company that produces and distributes energy. The company's portfolio of assets includes roughly 30 gigawatts of electricity that serves about 7 million customers.

Many investors are drawn to utility stocks because they are highly reliable businesses, with revenue models that provide stability regardless of what is going on in the broader global economic environment.

But Dominion isn't just standing still. It's growing, with projections of more than 14% revenue expansion this fiscal year. Furthermore, it has financed a $37 billion capital expenditures plan over the next five years that it believes will support annualized earnings growth of 6.5% through 2026, largely through the development of solar and wind farms. That won't just fuel better performance, but also help its operations evolve in light of climate change and emission reduction trends.

Shares of this top utility name, which is also one of the best retirement stocks for 2022, are up about 5% year-to-date. And with the consensus price target about 9% higher than the current valuation, Wall Street seems to believe that there are future gains ahead, too.

Exelon

  • Market value: $46.2 billion
  • Dividend yield: 2.9%
  • Analysts' ratings: 8 Strong Buy, 3 Buy, 6 Hold, 1 Sell, 0 Strong Sell
  • Analysts' consensus recommendation: 2.00 (Buy)

Exelon (EXC) is one of the top publicly traded utility stocks in the U.S. It owns nuclear, wind, hydroelectric and solar generating facilities along with traditional fossil fuel power plants.

EXC is among the nation’s largest providers as measured by connections, serving more than 10 million customers through six fully regulated transmission and distribution utilities. These include Atlantic City Electric, Baltimore Gas and Electric, Commonwealth Edison, Delmarva Power & Light, PECO Energy Company and Potomac Electric Power Company.

That unmatched scale along with a diversified customer base makes this top utility stock incredibly attractive right now. But EXC isn't pursuing growth at all costs, as evidenced by the spinoff of Constellation (CEG) – another stock on this list – to streamline its operations. In part because of this increased focus, Morgan Stanley recently reiterated its Overweight (Buy) recommendation, and JPMorgan upgraded the stock to Overweight in April.

Shares are up more than 14% so far in 2022 thanks to strong support from investors amid a "risk-off" environment. This puts EXC in a solid position to enter the latter part of 2022 with strong momentum.

Entergy

  • Market value: $23.7 billion
  • Dividend yield: 3.4%
  • Analysts' ratings: 9 Strong Buy, 5 Buy, 3 Hold, 1 Sell, 1 Strong Sell
  • Analysts' consensus recommendation: 1.95 (Buy)

Entergy (ETR) is an electric utility that powers about 3 million customers through gas, oil, nuclear, coal, hydroelectric and generation facilities. ETR serves a wide region across Arkansas, Mississippi, Texas and Louisiana that gives it a diversified mix in both its customer base and in its energy sources for power electricity generation.

As a result, ETR can effectively control input costs in an inflationary environment when some commodities could be rising in price faster than others and putting pressure on margins. After all, these power generators can be heavily regulated and don't have the flexibility to quickly ratchet up rates just because energy sources are more expensive. However, a utility like Entergy can shift its mix and thus mitigate some of these inflationary pressures.

What's also interesting about ETR stock is its expertise in the decommissioning of nuclear power plants. The push for renewable energy has left behind nuclear facilities in some regions – and shutting down an aging or redundant site is certainly a delicate task. That means ETR can use its homegrown expertise for a hefty profit as it serves other utilities with this unique need.

Credit Suisse just initiated coverage on the stock in April with an Outperform rating, saying the company is well-positioned to mitigate red-hot inflation.

And with a generous dividend payout that is only around 60% of next year's projected earnings, ETR is likely to continue to deliver regular distributions to shareholders and solid results – making it one of the best utility stocks to own in 2022 and beyond.

Black Hills

  • Market value: $4.9 billion
  • Dividend yield: 3.2%
  • Analysts' ratings: 3 Strong Buy, 2 Buy, 2 Hold, 0 Sell, 0 Strong Sell
  • Analysts' consensus recommendation: 1.86 (Buy)

Black Hills (BKH) is one of several utility stocks on this list that operates a diversified split between gas and electricity business lines. It generates power for almost 1.1 million customers across Arkansas, Colorado, Iowa, Kansas, Nebraska and Wyoming.

BKH also operates a small mining segment that produces thermal coal that it uses at its own plants or sells to other electric generation facilities worldwide. In addition, the company constructs and maintains gas infrastructure facilities for third parties and provides appliance repair services.

Both profits and revenue are trending higher at a steady pace. For all of 2022, analysts are expecting earnings per share to be up 8.8% over the previous year and revenue to be 0.2% higher.

Shares are also trending up, with BKH 5.5% higher compared with where it was to start 2022. That's proof positive that the slow-and-steady businesses in the utility sector still have a lot to offer investors in this time of uncertainty, even if they don't boast the kind of sales or profit expansion you might find in other sectors during boom times.

NiSource

  • Market value: $12.5 billion
  • Dividend yield: 3.1%
  • Analysts' ratings: 6 Strong Buy, 4 Buy, 4 Hold, 0 Sell, 0 Strong Sell
  • Analysts' consensus recommendation: 1.86 (Buy)

NiSource (NI) is a natural gas and electric utility company founded way back in 1847 and with deep roots in Indiana. It now operates power plants as well as natural gas distribution to more than 4 million customers in six states.

While the company does own and operate two coal-fired plants and two hydroelectric dams, it is very much a natural gas play. That's decidedly good for NiSource, with natural gas prices nearly tripling over the last 12 months.

NI's margins are looking very good, as earnings and revenue continue to climb higher. And estimates are for the company to post earnings-per-share and revenue growth of 5.8% and 8.6%, respectively, this fiscal year.

But more importantly for investors seeking out the best utility stocks, its share price is up about 11% this year even as the rest of Wall Street has struggled.

And longer term, NiSource continues to look beyond fossil fuels to ensure it remains one of the best utility stocks. Last year, the company announced plans to deploy 11 major renewable energy generation projects as a way to ensure it is aligned with the ongoing sustainability concerns in the industry.

CenterPoint Energy

  • Market value: $19.3 billion
  • Dividend yield: 2.2%
  • Analysts' ratings: 9 Strong Buy, 6 Buy, 3 Hold, 1 Sell, 0 Strong Sell
  • Analysts' consensus recommendation: 1.79 (Buy)

CenterPoint Energy (CNP) is another of the uniquely diversified utility stocks featured here, providing both electricity generation as well as natural gas distribution, transportation and storage. Strangely enough, it also offers home repair protection services, including maintenance on kitchen appliances.

This allows the Houston-based company to generate a very reliable stream of revenue – whether it's from a repair call in Minnesota, electricity service in Louisiana, or fees generated from its interstate pipelines through Mississippi, Texas and Oklahoma.

To be clear, that revenue is not moving dramatically higher. Current projections are for top-line growth in the low single-digits across both fiscal 2022 and fiscal 2023. But on the other hand, the share price of CNP has moved higher lately even as the rest of Wall Street has been in free fall. Specifically, CenterPoint Energy stock is up about 10% since Jan. 1, thanks to a rotation out of riskier assets and into quality, defensive plays like this one.

CNP is well-liked among Wall Street's pros, too. "We believe that CenterPoint is committed to optimizing the value of its regulated utility and processing and storage businesses, and that it has the potential to generate total returns for shareholders of 6%-8% annually over the next two to three years," says Argus Research analyst David Coleman (Buy).

NextEra Energy

  • Market value: $139.5 billion
  • Dividend yield: 2.3%
  • Analysts' ratings: 10 Strong Buy, 6 Buy, 5 Hold, 0 Sell, 0 Strong Sell
  • Analysts' consensus recommendation: 1.76 (Buy)

NextEra Energy (NEE) is a traditional electric utility that generates and distributes power to retail and wholesale customers in North America. Formerly known as FPL, it serves about 11 million people in the east and lower west coasts of Florida.

This company can trace its roots back almost a century, and is a great example of the entrenched and near monopolistic business model that traditional utility stocks have. They are highly regulated, they have a low chance of competition given the cash necessary to build an electricity distribution network, and they are not likely to see customers change their relationships overnight on a whim.

Is it likely that Florida demand for electricity will double in the next year and drive record profits for NEE? Of course not. But conversely, is it also unlikely that NEE will see half of its business dry up. Instead what you get is a slow-and-steady approach, including projections of roughly double-digit earnings growth both this fiscal year and next for NextEra.

In a "risk-off" environment like we're currently in, Wall Street analysts are increasingly turning to stocks like this one as a calm port in an otherwise stormy market. This spring, Mizuho (MFG), KeyBanc and Wells Fargo (WFC) all reiterated Buy or equivalent ratings on NEE.

Constellation Energy

  • Market value: $18.7 billion
  • Dividend yield: 1.0%
  • Analysts' ratings: 7 Strong Buy, 5 Buy, 2 Hold, 0 Sell, 0 Strong Sell
  • Analysts' consensus recommendation: 1.64 (Buy)

In many ways, Constellation Energy is as much of a play on sustainability and green energy as it is a utility stock. The firm generates and sells electricity across a host of markets in the U.S. It does this by relying on its 32,400 megawatts of generating capacity driven by nuclear, wind, solar, natural gas and hydroelectric assets.

Constellation was formerly a subsidiary of the larger utility stock Exelon. It completed its separation and re-launching as a standalone in February. That restructuring also came with $2.5 billion in debt reduction through May.

Due to its recent spinoff, the company doesn't have an extensive backlog of financials. However, it does boast a strong growth outlook thanks to its green energy operations. Constellation recently announced long-term agreements to supply Pennsylvania-based convenience store Sheetz and cable giant Comcast (CMCSA) with green energy to help the corporations reduce their carbon footprints. Partnerships such as these are one of the reasons analysts are expecting earnings to grow nearly 60% from fiscal 2022 to fiscal 2023.

The sustainability angle of CEG makes this name a bit more "growthy" than some of the more stolid utility stocks on this list. However, it still offers a significantly lower risk profile than some of the more aggressive investments in cryptocurrency or small-cap tech stocks, which could make for a good balanced investment in an uncertain market.

AES

  • Market value: $13.5 billion
  • Dividend yield: 3.0%
  • Analysts' ratings: 8 Strong Buy, 4 Buy, 2 Hold, 0 Sell, 0 Strong Sell
  • Analysts' consensus recommendation: 1.57 (Buy)

Diversified power generation and utility company AES (AES) is based in Virginia, but it owns and operates facilities around the world, including in Puerto Rico, El Salvador, Brazil, Mexico, the Caribbean, Europe and Asia. All told, it operates a power generation portfolio of almost 32,000 megawatts – enough juice to power as many as 28 million homes.

This geographic diversification is unique among other utility stocks, and has helped provide the potential for both growth as well as resilience in a very uncertain energy market. As a result, AES is projecting high-single-digit earnings growth in fiscal 2022 and in 2023 – projections that it just reaffirmed in early May. That's not a rate that will set the world on fire, but considering the struggles we've seen in other sectors lately, that is a decided vote in this stock's favor.

Additionally, AES recently won its third "investment grade" rank from credit rating agency Moody's. This means that all three major ratings agencies now consider this utility among the most creditworthy operations out there.

There's risk in the diversified model given that developing markets can be more volatile politically and economically than the old, boring domestic utility market. However, the Wall Street community's bullish view on AES – including a consensus price target about 35% higher than current levels – hints that this company is navigating the risks just fine and continues to deliver shareholder value.

IdaCorp

  • Market value: $5.4 billion
  • Dividend yield: 2.8%
  • Analysts' ratings: 4 Strong Buy, 0 Buy, 1 Hold, 0 Sell, 0 Strong Sell
  • Analysts' consensus recommendation: 1.40 (Strong Buy)

Boise, Idaho-based IdaCorp (IDA) is a power generation and distribution company that operates in the Western U.S. Specifically, it operates 17 hydropower-generating plants and three natural gas-fired plants and holds interests in two coal-fired plants. All told, it maintains more than 600,000 connections to consumers and businesses across Idaho, Oregon, Wyoming and Nevada.

IDA reported its first-quarter financial results in May that featured earnings of 91 cents per share, up moderately from the year-ago period. Furthermore, it reaffirmed its full-year guidance for steady year-over-year growth. This is a great sign, as the company has weathered inflationary pressures and supply-chain constraints that have weighed on the margins of some other names in the sector.

Idacorp is smaller than the largest publicly traded utility stocks out there, with a market cap of just over $5 billion at present. Still, it is showing best-in-class performance.

That's in part why it's among one of the highest-rated utilities at present; Wells Fargo just upgraded the stock in May due to a more "reasonable" valuation, and Mizuho initiated coverage with a Buy recommendation in March. And the average price target of $122.80 implies expected upside of nearly 15% over the next 12 months or so.

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