Dividend-paying utility stocks were once considered the cornerstone of a conservative investor’s income portfolio. The market is much larger today than when utilities were called “widow and orphan” stocks, but more dividend stock options don’t really change the opportunity to add boring utilities to your portfolio. dividend stocks. As June begins, you may want to take a look at NextEra Energy (NYSE: NO), Brookfield Renewable Energy (NYSE:BEPC)(NYSE:BEP)and, for those with a contrarian bent, Dominion Energy (NYSE:D). Here’s why.
1. NextEra Energy is a dividend growth machine
NextEra Energy has increased its dividend by about 10% per year, on an annualized basis, over the past decade. That’s a good number for any business, not to mention a boring utility. To put this number into perspective, a dividend growth rate in the mid-single digit range would normally be considered strong for a utility. But here’s the thing: NextEra also projects 10% dividend growth through at least 2026. If you are a dividend growth investor or a growth and income investor, you will love NextEra Energy.
NextEra Energy achieves dividend growth through a unique approach. The core of the activity is a large operation of a regulated public service, comprised largely of Florida Power & Light. This division offers slow and steady growth. In addition to regulated utility operations, NextEra is backed by one of the largest solar and wind companies on the planet, where the company’s overall growth comes from.
By around 2026, NextEra plans to build up to 41.8 gigawatts of renewable energy, which is a huge sum and suggests there is strong growth ahead for the company as a whole. Although the stock’s yield is modest at 2.6%, the dividend growth is the real draw here.
Brookfield Renewable focuses on clean energy
That said, some investors might look at the utilities sector and think that clean energy is the real future, which is why NextEra is investing so heavily in the space. If you want to ditch the old technology and focus solely on the new, Brookfield Renewable is a great option, either as a limited partnership or through the corporate share class. Both offer a growing income stream and attractive returns.
The partnership category has a dividend yield of around 5% today, while the corporate category has a dividend yield of around 4.5%. (Demand from institutional investors who may not be allowed to hold partnerships is likely the cause of the yield difference, since the two categories pay identical distributions.)
Brookfield Renewable has a globally diversified portfolio of clean energy assets, including hydro, solar, wind and storage. However, it is important to understand that Brookfield Renewable is managed by Brookfield Asset Management (NYSE:BAM). It’s a way for small investors to invest alongside a giant asset manager with a long history in the infrastructure sector.
This is a bit of a game changer because Brookfield Renewable’s goal is not simply to purchase and operate renewable energy assets. Its goal is to buy assets at attractive prices, increase their value through strong operations, and then sell them if it can achieve an attractive price. It’s a little different from a traditional utility, but it has worked well for income-oriented investors so far.
Dominion Energy is in recovery mode
The latest stock rising is Dominion Energy, one of the largest regulated utility companies in the United States. Its yield today is around 5% (for reference, the average yield of a public service is around 3.3%). And it recently cut its dividend after selling a major midstream business to Warren Buffett’s company. Berkshire Hathaway. Following this event, management decided to undertake a business review which resulted in the sale of three natural gas utilities to Enbridge. Today, the utility is essentially a pure electricity producer.
So the real attraction here is in the future. Currently, Dominion is working to strengthen its balance sheet (at least in part through asset sales) and reduce its dividend payout ratio to match that of the peer group. It will take a few years for these efforts to come to fruition, but once Dominion gets its financial house in order, dividend growth will likely follow earnings growth.
The earnings growth scenario here is quite reliable, given the regulated operations that support Dominion’s business. Add to that significant exposure to one of the most in-demand data center markets (data centers consume a lot of energy) and you have another reason to be positive. Although this story revolves around a turnaround, for long-term investors with a contrarian bent, this high-yielding utility could be attractive right now.
Many Dividend Options in Utility Lands
Don’t pass on utilities because they’re just boring actions – that’s not the case at all. If you’re a dividend growth enthusiast, you’ll really like NextEra Energy. If you want to move with the world toward clean energy, while also seeing an attractive and growing revenue stream, Brookfield Renewable will be of interest to you. And if you like a good turnaround story, you’ll appreciate Dominion Energy and its high yield.
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Ruben Gregg Brewer holds positions in Dominion Energy and Enbridge. The Motley Fool holds positions and recommends Berkshire Hathaway, Brookfield Asset Management, Brookfield Renewable, Enbridge and NextEra Energy. The Motley Fool recommends Brookfield Renewable Partners and Dominion Energy. The Mad Motley has a disclosure policy.
3 Utility Dividend Stocks to Buy in June was originally published by The Motley Fool
