Utility stocks aren't exactly the most glamorous energy-related investment on Wall Street.
If you want dynamic energy stocks, solar energy and hydrogen fuel cell picks offer a ton more growth potential. Or if you want deep value investments, struggling Big Oil giants that are trading at a fraction of their value from a few years ago could be aggressive plays that pay off.
But utilities do offer one thing few other energy-related stocks can offer: unrivaled stability. After all, electricity is as much a necessity as food and water for the typical household in the 21st century. Furthermore, the highly regulated nature of the sector and lack of competition in most geographies adds a layer of predictability that you simply won't find in disruptive industries such as Big Oil or alternative energy.
Here are nine of the best utility stocks for 2021 if you're seeking stability and generous dividends to provide a stable backbone for your portfolio. While they probably will never make you a millionaire overnight, they are far less aggressive and will allow you to sleep soundly regardless of Wall Street volatility in the New Year.
Data is as of Jan. 19. Dividend yields are calculated by annualizing the most recent payout and dividing by the share price.
Market value: $18.7 billion
Dividend yield: 2.2%
AES (AES) offers one of the lowest yields among the best utility stocks covered here, but don't overlook it. Not only have shares surged 160% from their March lows, but AES generated a market-beating gain of 18% when many other utilities finished the year in the red.
Perhaps unsurprisingly for a relatively subdued sector, that isn't because of any major deal or dynamic growth plans, but rather simply because of this utility getting back into a groove by not making many headlines.
That might not sound like a bullish signal, but it's welcome news for many AES investors after substantial earnings volatility in recent years driven by operations that extend outside the U.S. into South America, Asia and Europe. Things seem to have normalized in 2020, however; In November, AES just reaffirmed its 2021 forecast and then increased its dividend in December by about 5%.
UBS, which rates the stock a Buy, also lauds a deal to sell its equity ownership interest (51%) in the Mong Duong Vietnam coal plant, saying "we believe the transaction is consistent with guidance and the strategy to invest in renewables and global LNG."
Market value: $23.4 billion
Dividend yield: 3.6%
DTE Energy (DTE) is a Detroit-based utility stock that serves about 2.2 million residential, commercial and industrial customers in Michigan. That alone would be enough to make this one of the larger stocks on the list, but DTE's gas segment also transports and sells natural gas to 1.3 million more customers.
On top of that, its massive operations also allow for smaller ancillary interests such as selling metallurgical coal to steel makers, producing wood pulp for paper companies, or treating local wastewater.
You'd be hard-pressed, then, to find a more entrenched stock in the sector. The highly regulated nature of utilities makes it incredibly difficult for new entrants or for challengers to expand into far-flung geographies away from their home markets, so DTE is sure to be safe for many years to come.
And after two big earnings surprises to close out 2020, Keybanc analysts just upgraded the stock to Overweight (equivalent of Buy). So DTE is among some top utility stocks riding strong momentum going into 2021.
Market value: $18.9 billion
Dividend yield: 4.0%
With about 3 million utility customers across Arkansas, Louisiana, Mississippi and Texas, Entergy (ETR) is a case study in why investors are drawn to this sector.
ETR maintains a large scale and is effectively a regional monopoly, making it very difficult for any other company to disrupt its operations. It also is diversified in its output, as it generates electricity through a wide array of power plants that span natural gas, oil, nuclear, coal, hydro and solar power sources. The icing on the cake, of course, is a yield that's more than double the typical stock in the S&P 500 (.SPX).
Revenue doesn't seem likely to move significantly in the coming year or two; however, the utility continues to improve earnings per share based on modest increases in prices and efficiency. That doesn't add up to a lot of growth, but it does equal unrivaled stability.
And Wall Street seems to like what it sees. Wolfe Research recently upgraded ETR to Outperform (equivalent of Buy) after a nice earnings surprise for Q3. Meanwhile, Argus Research recently reiterated its Buy rating, saying "Over the long term, we like the company’s strategy of investing in regulated utilities to replace aging infrastructure and improve reliability."
Both belong in a pool of 14 Strong Buy or Buy calls from the analyst community, versus just four Holds.
That makes Entergy one of the best utility stocks for 2021, as far as analyst ratings are concerned.
Market value: $4.5 billion
Dividend yield: 3.2%
Idacorp (IDA) is a midsized electric utility stock that, while still nearly 20% down from where it traded a year ago before the coronavirus pandemic, currently earns very strong ratings from Wall Street analysts right now.
Serving Idaho, Wyoming, Nevada and Oregon, the company operates hydroelectric dams, natural gas and coal-fired power plants serving about 600,000 customers. This smaller size makes it admittedly more volatile than some larger utilities, but the outlook is very positive right now among institutional investors.
Furthermore, the company is coming off a big earnings beat in October that both topped expectations and marked an impressive 13% jump in profits year-over-year. The fact that operations have stabilized and electricity demand should rise as the worst of the pandemic abates bodes well for IDA's chances in 2021.
National Fuel Gas
Market value: $3.9 billion
Dividend yield: 4.2%
National Fuel Gas (NFG) is a hybrid energy and utility company, as it operates in multiple segments that include all elements of the electricity supply chain: exploration and production of oil and gas, transportation and storage for fossil fuels, and electric utility operations.
Though utility customers only total about 750,000 connections, the soup-to-nuts approach of NFG allows it a greater degree of control and profitability on its electricity operations. And of course, there's nothing that prevents NFG from selling excess oil and gas to other firms, either, to diversify its revenue.
Profits are booming right now as a result of this efficient setup. In 2019, the company earned $2.92 per share, and that will surge about 28% to $3.73 in 2020. This year, NFG is expected to rake in $4.15 per share.
Shares did take a hit in spring, like many utilities, but they have since stabilized. And now, as we enter 2021, National Fuel Gas is looking not just like one of the best utility stocks for the year to come, but a bargain too.
"Shares generally trade at discounts to both peer and historical average multiples," writes Argus Research, which rates NFG at Buy.
Market value: $8.6 billion
Dividend yield: 3.7%
NiSource (NI) distributes natural gas directly to 3.5 million customers for heating, cooking and hot water, then provides electricity to another 500,000 customers primarily through the use of its gas-fired power plants.
The good news for NI investors is that the customer base is diverse. NiSource serves a wide range of the U.S., from Ohio to Virginia to Massachusetts. Furthermore, analysts are bullish on its outlook for 2021, seeing as natural gas prices are forecast to rise this year.
Just before Thanksgiving, Barclays upgraded NI to Overweight and put a $29 price target on the stock. That's roughly 30% upside from here on top of a very generous dividend and very stable long-term operations. They're not alone – 12 of the 14 analysts with ratings on the stock call it a Buy or Strong Buy.
Market value: $10.1 billion
Dividend yield: 2.9%
Integrated power company NRG Energy (NRG), based in New Jersey, delivers electricity to almost 4 million customers through operations that use everything from old-school coal plants to solar farms, nuclear generators and even battery storage facilities.
Like many of the largest publicly traded utility stocks, NRG Energy benefits from serving densely populated areas, and it offers much-desired stability as a result.
Of course, NRG is set to finish 2020 with a profit decline on the year in large part because the coronavirus kept workers out of those large urban centers and office buildings and factories used far less electricity.
But revenue is projected to surge 17% in 2021, and earnings are also looking to power higher as the economy normalizes.
Meanwhile, UBS (Buy) notes that exciting changes are afoot, saying "The company is expected to hold an analyst day in the spring, which we believe will highlight the transition to a consumer focused retail based business model."
Market value: $4.9 billion
Dividend yield: N/A
An oddball among very boring utility stocks that tend to draw in investors with the promise of stability and reliable dividend yields, Sunnova Energy (NOVA) is a dynamo that has risen more than four-fold in 2020 thanks to a booming residential solar energy business.
The last year was perfect for NOVA as more folks were stuck at home with nothing to do but think about improvements to their property, and a general push for sustainability continued in earnest. Many families have been hit hard by coronavirus, true, but the reality is that lower-income Americans tend to not be the homeowners Sunnova targets; white-collar workers have done just fine in the last year, and they continue to spend freely around the house.
NOVA is easily one of the best utility stocks of the past year, more than quadrupling since this time in 2020. But remarkably, the analyst set isn't budging from their bullish positions. Capital One just upgraded Sunnova to Overweight in December, as did Piper Sandler in October. All told, NOVA has 11 Buys and Strong Buys versus just one Hold and no Sells.
Meanwhile, Sunnova enters the New Year with projections of more than 25% earnings growth in fiscal 2020 and another 35% in fiscal 2021. That makes NOVA one of the rare utility stocks on Wall Street where investors can actually chase growth.
Market value: $10.6 billion
Dividend yield: 2.5%
Vistra (VST) is a substantial utility stock that sells electricity and natural gas to customers across a massive footprint that spans 20 states and tallies nearly 5 million customers in total.
That scale hasn't always been a good thing. Shares have struggled since late 2019 as Wall Street soured on its acquisition-led strategy of purchasing retail energy companies. These non-regulated third-party energy providers can theoretically offer competition to the local "default" regulated utility, but it is a hard business sometimes. It can also offer much smaller margins, as these third-party utilities often have to rent infrastructure to reach any new customers it manages to acquire.
The pandemic really put a hurt on the stock, as VST dropped more than 40% from its early 2020 highs through its March lows. And while it hasn't clawed all of that back yet, Wall Street seems to believe that he worst is now over and future challenges are fully priced-in based on the last 18 months or so of action.
This is decidedly a "value" investment rather than a "growth" trade. But for many investors in utility stocks, that's the kind of strategy that makes the most sense in this sector anyway.
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