Before President Trump was elected, he promised voters that he would make America great again. Included in the plan was to rebuild the country’s infrastructure. This was seen as bullish news for the markets in general and especially for utility stocks.
Utility companies include gas, electric, water, and other forms of infrastructure firms. When it comes to investing in these type utility stocks, investors look for steady growth and robust yields.
That said, utility stocks typically less volatile, offer balance and diversification to a portfolio. Of course, it’s not always cut and dry. Some utility stocks that operate in California saw large drops in 2017, as parts of the state dealt with massive wildfires. Events like this cause lawsuits and put regulators on notice. That said, savvy investors should pay attention to where utility companies do their business and look to avoid ones that are in risky areas.
Could These Be The Best UtilitiesStocks?
NextEra Energy, Inc. (NYSE: NEE): This firm is America’s third-largest capital investor in 2016, and has more than $40 billion in new infrastructure investments planned through 2020. Fortune ranked them in the top 10 for innovation around the world. The company has been around since 1925 and is currently the world’s largest utility company. The company generates electricity through wind, solar, nuclear, and natural gas-fired facilities.
Not only does this company offer a dividend yield 2.50%, its stock price has been rising steadily, and has even outperformed the S&P 500 over the last decade.
Dominion Energy, Inc. (NYSE: D): This firm produces and transports energy in the United States. As of December 31, 2016 Dominion’s portfolio of assets included approximately 26,400 megawatts of generating capacity; 6,600 miles of electric transmission lines; 57,600 miles of electric distribution lines; 14,900 miles of natural gas transmission, gathering, and storage pipelines; and 51.3000 miles of gas distribution pipelines.
The firm has a market cap exceeding $50B and offers a dividend yield of 3.82%
Duke Energy Corporation (NYSE: DUK): This energy company has approximately 1.5M customers, including 1 million customers located in North Carolina, South Carolina, and Tennessee, along with 529,000 customers located in southwestern Ohio and northern Kentucky. The firm operates in three segments: Electric Utilities and Infrastructure, Gas Utilities and Infrastructure, Gas Utilities and Infrastructure, and Commercial Renewables.
This Fortune 125 company is the second largest utility company based on market cap and offers investors a dividend yield of 4.21%
What You Should Consider Before Investing In Utility Stocks
Many investors view utility stocks as a value and dividend play. That said, utility stocks are attractive when interest rates are low, and less attractive when interest rates are rising. A high dividend yield should not be the only reason why you buy a utility stock, growth is also important.
Avoid utility stocks that are holding a lot of company debt and have a fairly valued price to earnings ratio.
Although the sector as a whole isn’t very volatile, there have been some names in the past that have seen their fair share of volatility. For example, in 2017, SCANA Corporation (NYSE: SCG) saw its shares plummet after the company announced they would be abandoning its nuclear project. This came after the firm already invested $9B in the project.
Overall, adding utility stocks to your portfolio will bring balance and diversification. Do your homework and don’t jump in on the sole purpose of receiving a dividend, as there are other factors that you should consider.