Investing in UK Utility Stocks in 2022
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 more trendy industries such as technology, utility stocks can form a valuable part of a diversified portfolio, particularly in the current economic climate.
In this article, we will look at why someone would want to invest in utilities, highlight 3 UK utility stocks to watch in 2022 and much more!
Table of Contents
Why Invest in Utilities?
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, investors tend to favour these defensive stocks, due to their characteristics of being able to produce steady revenue.
Top UK Utility Stocks to Watch
The UK’s FTSE 100 contains several large utility companies which supply the UK and further afield. In the following sections, we have highlighted 3 UK utility stocks that investors might want to consider adding to their portfolios in 2022.
These 3 utility stocks all pay dividends which, at the time of writing, exceed the dividend yield of the wider FTSE 100, which currently stands at 4.1%.
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 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. They aim to treble their renewable energy output from 2019 by 2030 and currently have the largest offshore wind development pipeline in the UK and Ireland.
In fact, SSE’s renewable energy segment accounted for roughly a third of operating profit in the year ending 31 March 2022. In the same year, SSE’s operating profit rose 15% year on year and, at the time of writing, the stock has an annual dividend yield of 5.7%.
United Utilities is the largest listed water supplier in the UK, serving more than 3 million homes and businesses across the North West of England, as well as treating their wastewater.
Like energy, water is a utility which people will always need, whether for drinking or washing, and which, therefore, they will always try to find room in their budget to pay for.
In the full year ended 31 March 2022, revenue and operating profit both increased very slightly, 3.0% and 1.7% respectively, reinforcing the principal that utility stocks can often rely on a steady and predictable level of demand. At the time of writing, this UK utility stock had a dividend yield of 4.9%.
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 and, in 2022, it accounted for more than a quarter of underlying operational profit.
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.
In the full year ending 31 March 2022, operating profit soared 82% year on year and, at the time of writing, the energy provider has a generous dividend yield of 5.5%.
How to Invest in Utility Stocks
With an Invest.MT5 account from Admirals, you can invest in the 3 UK utility stocks highlighted in this article as well as over 4,300 other stocks and more than 200 Exchange-Traded Funds (ETFs)!
In order to learn how to invest in utility stocks, follow these 4 steps:
- Open an Invest.MT5 account with Admirals and log in to the Trader’s Room
- Find your account details in the Dashboard and click ‘Invest’ to open the MetaTrader Web Terminal
- Search for the desired utility stock in the Market Watch. Once located, click and drag the symbol onto the chart to open the relevant price chart.
- Right-click on the chart, select ‘Trading’ and then ‘New Order’ to open an order window, as pictured below. Here you can fill out the number of utility shares you wish to purchase, before hitting ‘Buy’ to send your order to the market.
Although the defensive characteristics of UK utility stocks may provide investors with a way of riding out the current economic uncertainty, as well as generating some additional income, they are not without their risks.
Utility stocks are facing many of the same headwinds which are affecting other industries. High inflation affects everybody, including businesses, who face increasing input costs for providing their services. If they are unable to pass all these costs onto consumers it could affect their earnings and, consequently, their share price.
If they are able to pass prices onto consumers, and these prices become too high, it may sour investor sentiment, which could also lead to a fall in share price.
Furthermore, the UK utilities sector is strictly regulated and, despite the government assuring there will be no further windfall taxes on energy suppliers, it may be unwise to take this as gospel just yet.
Before investing in UK utility stocks, or any other type of stocks, it is important to do your own research and weigh the potential risks and rewards of the investment before making any decision.
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 a wide array of stocks and ETFs, Invest.MT5 account holders benefit from:
- A low minimum deposit of just €1 to open an account
- Competitive transaction fees and no account maintenance costs
- The ability to buy fractional shares in 700 of the world’s most exciting companies
- Exclusive access to our Premium Analytics portal, where you can find the latest market news, sentiment and technical insight
To start enjoying these benefits and many more, click the banner below to open an account today:
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