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Three utility stocks to buy by hand in April

Smart long-term dividend investors should look for attractive utility stocks while the utility sector continues to struggle on Wall Street. In particular, the S&P500 The index has risen by more than 27% in the past year Vanguard Utilities ETF (NYSEMKT: VPU) has fallen by 3%.

This is an opportunity to pick up solid dividend-paying utilities like NextEra Energy (NYSE: NO)relatively small Black hills (NYSE: BKH)and absolutely minor Dividend King Northwest Naturally (NYSE: NWN). The best part: They all have historically high yields these days.

NextEra Energy is all about dividend growth

NextEra Energy’s 3.2% dividend yield probably won’t excite many dividend investors. But what will excite dividend growth investors, as well as investors looking for a mix of growth and income, is the 10% annualized dividend growth over the past decade.

In the meantime, management expects to maintain that impressive pace of dividend growth until at least 2026. Dividend growth of 10% per year is extremely high for a utility, underpinned by NextEra Energy’s unique model that combines a regulated utility with a globally dominant clean energy producer. the long term success here.

That said, what dividend investors really need to know is that the 3.2% dividend yield is near a ten-year high. Historically, NextEra Energy looks attractively priced today, assuming your investment goal is dividend growth and not maximizing current earnings.

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Black Hills is small but mighty

Black Hills has a market cap of $3.6 billion, which is small compared to NextEra Energy’s $130 billion market cap. But NextEra Energy’s 29-year streak of dividend growth pales in comparison to Black Hills’ 53-year streak, firmly cementing Black Hills as Dividend King.

What also sets Black Hills apart from NextEra Energy is Black Hills’ dividend yield of 4.7%. That’s well above NextEra Energy’s return and above the average utility’s roughly 3.6% return, using Vanguard Utilities ETF as a proxy. And Black Hills’ dividend yield is near a 10-year high, so it looks like the stock is on a sell-off.

Black Hills is a mix of an electric utility and a natural gas utility. It serves the regions of Arkansas, Colorado, Iowa, Kansas, Montana, Nebraska, South Dakota and Wyoming. While inflation and rising interest rates have been a headwind as they increase operating costs, Black Hills has worked to reduce its debt burden. From a business perspective, customer growth has been nearly three times faster than population growth in the United States. While this utility is probably not one most investors will have heard of, it appears well-positioned to grow its business in the long term.

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Northwest Natural is a mouse that expects to roar soon

If you want to talk about a small but mighty utility company, you should look at Northwest Natural.

This Oregon electric and water company has a small market cap of about $1.4 billion. Like Black Hills, Northwest Natural is a Dividend King. However, this little guy’s streak of annual dividend increases has lasted a whopping 67 years and counting. Northwest Natural’s dividend yield currently stands at 5.3%, which is near a 10-year high (and well above the other two yields discussed).

Here’s the problem: Northwest Natural predicts that 2024 will be a bad year on the earnings front, with earnings falling from $2.59 per share in 2023 to $2.20 to $2.40 in 2024. The main reason for that is that utility costs have increased. , but interest rates will not be reduced until later in 2024.

However, the company knows this and still stands by its longer-term growth forecast of 4% to 6% earnings growth based on 2022 results ($2.54 per share). So management thinks this dip is just a blip as the company continues to execute on its long-term growth plan. Given its impressive dividend record, it seems fair to give Northwest Natural the benefit of the doubt.

Something for every type of income investor

There are many utility options as you explore this out-of-favor sector for investment ideas. Three of these currently stand out as values, based on their historically high returns.

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Dividend growth investors will like NextEra Energy. Dividend King Black Hills has a proven track record and operates in an attractive region. And for those willing to wait for good news, Dividend King Northwest Natural is working with regulators to account for the utility’s rising costs later in 2024 – which management clearly believes will get its business back on the growth path . It’s likely that at least one of these utilities will be a good fit for your portfolio in April.

Should You Invest $1,000 in NextEra Energy Now?

Consider the following before purchasing shares in NextEra Energy:

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Reuben Gregg Brewer has positions in Black Hills. The Motley Fool has positions in and recommends NextEra Energy. The Motley Fool has a disclosure policy.

3 Utility Stocks to Buy Hand Over Fist in April was originally published by The Motley Fool

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