Investing in Utility Stocks

Roberto Rivero

Utility companies are responsible for providing households and businesses with electricity, gas, water, waste disposal and other necessary services in the modern world. Whilst investing in utilities may not be considered as exciting as other industries such as technology, utility stocks can form part of a diversified portfolio, particularly in the current economic climate.

In this article, we will look at why someone might want to invest in utilities companies, highlight 4 of the best utility stocks to watch in 2024 and much more!

Investing in Utility Companies

Utility companies provide us with services which we use every day. We pay for these services almost without thinking about it as, to be without them, is almost unthinkable in the modern world.

Therefore, as with healthcare and grocery costs, we tend to prioritise utility bills over the majority of other expenses. This means that the providers of these utilities tend to be able to rely on consistent demand and are able to generate reliable revenue throughout all stages of the economic cycle; they are, in other words, examples of what are called defensive stocks.

In periods of economic uncertainty, such as the one we are currently living through, the popularity of these so-called defensive stocks tends to increase, due to their ability to potentially add stability to a portfolio.

Besides their defensive qualities, utility stocks are often generous dividend payers, making them popular with income investors. However, as is the case with all dividend stocks, future payouts are never guaranteed.

So, what are the best utility stocks to invest in?

Best Utility Stocks to Watch

In the following sections, we will highlight 3 UK utility stocks and 1 utility company from the other side of the Atlantic that investors might want to consider adding to their portfolios in 2024. All 4 companies also pay dividends and represent some of the best utility dividend stocks to watch in the year ahead.

Best Utility Stocks to Watch
SSE
United Utilities
National Grid
NextEra Energy

SSE

SSE generates and supplies electricity and natural gas to millions of households throughout the UK and Ireland and is one of the so-called “Big Six” energy suppliers of the UK.

Besides being an important provider of energy, something which will resonate with many investors is that SSE is a utility stock which is investing heavily in a cleaner future.

The company has a large portfolio of onshore wind, offshore wind and hydro and is investing in expanding this further, with the aim of increasing renewable energy output to 50TWh a year by 2030. In the year ended 31 March 2023, SSE’s renewable energy segment accounted for roughly 23% of total operating profit.

The UK utility company has a long history of paying dividends. After many years of consistent dividend growth, dividend payments were reduced, but not halted, in response to the Covid-19 pandemic in 2020. However, dividends have increased each year since and the stock currently has a dividend yield of 3.6%.

United Utilities

United Utilities is the largest listed water supplier in the UK, serving more than 7 million customers and businesses across the North West of England, as well as treating their waste water.

Like energy, water is a utility which people will always need, whether for drinking or washing, and which they will always try to find room in their budget to pay for.

In the six months ended 30 September 2023, revenue and underlying operating profit both increased 6.8% and 4.9% respectively.

United Utilities has increased its annual dividend every year for the last 12 years, and has a ten-year annual dividend growth rate of 3%. At the time of writing, its dividend yield is 4.5%.

National Grid

The next of our UK utility stocks, National Grid, owns and manages electricity and gas transmission networks across Great Britain.

Its electricity transmission network has a near total monopoly in Britain, with the vast majority of electricity produced on the island having to pass through their network. In other words, the revenue produced by this portion of their business is quite dependable.

Besides its vast UK customer base, National Grid also operates in the US, where it serves more than 20 million people throughout New York and Massachusetts.

National Grid has a long history of paying dividends to shareholders. The company has hiked its annual payout every year for more than 20 years, placing it comfortably in the list of UK dividend aristocrats and making it one of the best UK utility dividend stocks to watch.

At the time of writing, its dividend yield of 5.5%, significantly higher than the wider FTSE 100’s yield of 3.8%, and it has a 15-year annual dividend growth rate of 4.3%.

NextEra Energy

NextEra Energy is the largest utility company in the world by market capitalisation and one of the world’s leading providers of solar and wind energy.

The utility stock has two main businesses, which are both wholly owned subsidiaries: Florida Power & Light (FPL), which contributed around 65% to the company’s revenue in 2023, and NextEra Energy Resources (NEER), which accounted for most of the rest.

Thanks to the growing population in Florida, FPL has benefitted from increasing demand over the long-term, which has allowed this business to grow steadily over the years. NEER, which is the company’s renewable power business, has grown at an impressive clip in recent years.

Whilst rising interest rates have had a negative impact on NextEra Energy’s share price, which fell 27% in 2023, its history of dividend payouts is impressive. NextEra Energy has raised its annual dividend for 27 consecutive years, and has a ten-year annual dividend growth rate of 10%.

How to Invest in Utility Stocks

With an investing account from Admirals, you can invest in the utility stocks highlighted in this article. In order to learn how to invest in utility stocks, follow these 4 steps:

  • Open an Invest.MT5 account.
  • Log in to the Dashboard.
  • Open the web trading platform.
  • Search for a utility company to invest in and open the price chart.
  • Create a new order, enter a number of shares and hit ‘Buy’ to send the order to the market.
Depicted: Admirals MetaTrader WebTrader – National Grid H1 Chart. – New Order. Date Captured: 7 February 2024. Past performance is not a reliable indicator of future results.

Investing with Admirals

For those who are ready to start investing, an Invest.MT5 account could be the right match. Besides being able to invest in thousands of stocks and Exchange-Traded Funds (ETFs), Invest.MT5 account holders benefit from:

  • Competitive transaction fees and no account maintenance costs.
  • The ability to buy fractional shares in 700 of the world’s leading companies.
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To start enjoying these benefits and many more, click the banner below to open an account today:

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INFORMATION ABOUT ANALYTICAL MATERIALS:

The given data provides additional information regarding all analysis, estimates, prognosis, forecasts, market reviews, weekly outlooks or other similar assessments or information (hereinafter “Analysis”) published on the websites of Admirals investment firms operating under the Admirals trademark (hereinafter “Admirals”) Before making any investment decisions please pay close attention to the following:

  • This is a marketing communication. The content is published for informative purposes only and is in no way to be construed as investment advice or recommendation. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research, and that it is not subject to any prohibition on dealing ahead of the dissemination of investment research.
  • Any investment decision is made by each client alone whereas Admirals shall not be responsible for any loss or damage arising from any such decision, whether or not based on the content.
  • With view to protecting the interests of our clients and the objectivity of the Analysis, Admirals has established relevant internal procedures for prevention and management of conflicts of interest.
  • The Analysis is prepared by an independent analyst Roberto Rivero, Freelance Contributor (hereinafter "Author") based on personal estimations.
  • Whilst every reasonable effort is taken to ensure that all sources of the content are reliable and that all information is presented, as much as possible, in an understandable, timely, precise and complete manner, Admirals does not guarantee the accuracy or completeness of any information contained within the Analysis.
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