Top 3 Utility Stocks to Purchase Aggressively in April

Top 3 Utility Stocks to Purchase Aggressively in April

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

This is an opportunity to acquire strong dividend paying utilities like NextEra Energy (NYSE: NO)relatively small Black hills (NYSE:BKH)and an absolutely tiny dividend king Natural Northwest (NYSE:NWN). The best part: they all have historically high yields today.

NextEra Energy is focused on dividend growth

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

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

That said, what dividend investors really need to know is that the 3.2% dividend yield is near its highest level in a decade. So, historically speaking, NextEra Energy appears attractively priced today, assuming your investment goal is dividend growth and not current income maximization.

Black Hills is small but mighty

Black Hills has a market cap of $3.6 billion, which is small compared to NextEra Energy’s market cap of $130 billion. But NextEra Energy’s 29-year dividend increase pales in comparison to Black Hills’ 53-year streak, which places Black Hills firmly within the group. King of dividends Status.

What also sets Black Hills apart from NextEra Energy is Black Hills’ 4.7% dividend yield. That’s well above NextEra Energy’s yield and the average utility’s yield of about 3.6%, using the Vanguard Utilities ETF as a proxy. And Black Hills’ dividend yield happens to be near a 10-year high, so it appears the stock is on sale.

Black Hills is a mix of an electric utility and a natural gas utility. It serves areas of Arkansas, Colorado, Iowa, Kansas, Montana, Nebraska, South Dakota and Wyoming. Although inflation and rising interest rates have been a hindrance as they increase operating costs, Black Hills has worked to reduce its debt load and, from a business perspective, the Customer growth has been nearly three times faster than population growth in the United States. Although most investors probably haven’t heard of this utility, it appears well-positioned to grow its business over the long term.

Northwest Natural is a mouse that expects to roar very soon

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

This Oregon-based electric and water utility has a tiny market cap of around $1.4 billion. Like Black Hills, Northwest Natural is a dividend king. However, this little guy’s annual dividend increase streak lasts 67 years and counting. Northwest Natural’s dividend yield is currently 5.3%, which happens to be 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 between $2.20 and $2.40 in 2024. The main reason is that public service costs have increased. , but it won’t receive rate relief until later in 2024.

However, the company knows this and maintains its long-term growth forecast of 4-6% earnings growth over 2022 results ($2.54 per share). Management therefore believes that this decline is just an incident as it continues to implement its long-term growth plan. Given the impressive dividend record, it seems reasonable to give Northwest Natural the benefit of the doubt.

A Little Something for Every Type of Income Investor

There are plenty of utility options if you’re looking at this disadvantaged area for investment ideas. Three currently stand out as stocks, due to their historically high returns.

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 says will allow its company to get back on track. path of growth. It’s likely that at least one of these utilities will be a great fit for your wallet this April.

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Ruben Gregg Brewer has positions in Black Hills. The Motley Fool ranks 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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