In this article, we will discuss the 10 best utility dividend stocks to buy.
Utilities are typically viewed as defensive investments. Unlike growth stocks, which are often tied to economic cycles, utilities provide essential services that are in constant demand, such as electricity, natural gas, and water. This makes them relatively stable performers during economic downturns. Despite experiencing a challenging year in 2023, the utilities sector is well-positioned for growth in 2024 and beyond.
So far, the utilities sector has been one of the best-performing sectors. There are a few primary factors driving the recent outperformance of the utilities sector. First, the market is anticipating potential interest rate cuts by the Federal Reserve. Given their relatively low-risk profile, utilities are often seen as bond proxies. As bond yields decline, the attractive dividend yields offered by utilities become more compelling.
Second, the growing demand from data centers powering artificial intelligence and cryptocurrency is significantly increasing electricity consumption. The International Energy Agency estimates that electricity usage by these sectors could rise from 460 terawatt-hours in 2022 to over 1,000 terawatt-hours by 2026, rivaling Japan’s total electricity consumption.
Read Also: 8 Best Utilities Stocks to Ride the AI Boom in 2024
Electrification Trends Across Key Sectors
The growth in the electric power industry is also fueled by the ongoing electrification of transportation, buildings, and industry sectors. Within the transportation segment, electricity demand projections vary widely based on EV adoption rates. While estimates range from a 16% to a 36% compound annual growth rate over the next decade, recent developments suggest a potential for higher growth. The increasing affordability of EVs, coupled with government incentives like tax credits, is driving rapid adoption.
In the buildings sector, the transition to electric heat pumps and water heaters in residential and commercial buildings is increasing electrification. Demand within this segment is projected to grow at a rate of approximately 0.5% to 0.9% annually through 2035, with the potential to reach as high as 3,700 terawatt-hours per year.
The industrial sector might not be as fast to electrify as the buildings and transport sector. Demand is forecasted to increase at a rate of 0% to 0.6% annually through 2035, reaching over 1,070 terawatt hours. Given that only 13% of the sector’s energy needs are currently met by electricity, there is significant potential for further electrification to align with decarbonization goals.
The sector’s long-term prospects are even more promising. The global transition from fossil fuels to renewable energy sources is accelerating, and utilities are at the forefront of this shift. In fact, The US Energy Information Administration (EIA) forecasts a significant increase in utility-scale solar installations, with a projected more than doubling to a record-breaking 24 gigawatts (GW) in 2023. This growth is expected to continue in 2024, with an additional 36 GW of solar capacity anticipated. As a result, the renewable energy share of electricity generation is projected to rise from 22% in 2023 to nearly 25% in 2024.
A construction site at dawn, a workers silhouetted in the morning sun, working on a utility plant.
Our Methodology
To compile our list of the best utility dividend stocks, we conducted an analysis of our database, covering over 900 hedge funds as of Q2 2024. Our focus was specifically on dividend-paying utility companies, including diversified utilities, independent power producers, and regulated gas, electric, and water utilities. From this list, we identified the 10 stocks with the highest number of hedge fund investors as of Q2 2024.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
10 Best Utility Dividend Stocks To Buy
10. UGI Corporation (NYSE:UGI)
Number of Hedge Fund Holders: 32
UGI Corporation (NYSE:UGI) is a diversified energy company with operations in gas and electricity distribution. Established in 1882, the company has a long history of providing essential energy services. UGI operates in four segments: AmeriGas, UGI International, Midstream & Marketing, and UGI Utilities, serving customers across the United States and internationally.
The company’s consistent financial performance has enabled it to reward shareholders with annual dividend increases for over 130 years. Currently, UGI Corporation (NYSE:UGI) offers a quarterly dividend of 37.5 cents per share, translating to an annualized dividend of $1.50. This generous dividend yield of 6.26% significantly exceeds the industry average, making UGI Corporation (NYSE:UGI) an attractive option for income-seeking investors.
In Q2 2024, UGI Corporation (NYSE:UGI) reported $1.97 in earnings per share, reflecting a $0.29 increase over the last year. Furthermore, effective cost controls across the company led to a $27 million reduction in operating and administrative expenses compared to last year.
Here’s what Miller Value Partners said about UGI Corporation (NYSE:UGI) in its Q1 2024 investor letter:
“The portfolio also recently bought its first utility. UGI Corporation (NYSE:UGI) distributes natural gas and electricity as well as liquid propane gas through its AmeriGas subsidiary, which is the largest retail propane distributor in the US. A true “dividend aristocrat,” UGI has paid shareholders a dividend for 139 consecutive years and looks poised to boost its dividend for the 37th consecutive year. At today’s price, the stock trades at its lowest price/earnings multiple in history, despite sporting a 6% yield with a plan to grow earnings power at a high single-digit rate.”
9. Entergy (NYSE:ETR)
Number of Hedge Fund Holders: 33
Entergy (NYSE:ETR) is a diversified energy company operating in both the wholesale and retail electric power markets. The company’s business segments include Entergy Wholesale Commodities, which focuses on electric power plant operations and nuclear decommissioning, and the utility segment, which covers the generation, distribution, and sale of electric power and natural gas in Mississippi, Texas, Arkansas, and Louisiana.
In Q2 2024, Entergy (NYSE:ETR) reported earnings per share of $1.92, beating estimates of $1.77. The company’s net liquidity stands at a healthy $5.9 billion, which includes around $800 million in equity forwards. While these forwards are not expected to be settled until next year, they provide a readily available cash source if necessary. Moreover, the company issued term debt during Q2, including $1.2 billion in junior subordinated notes, which are highly supportive of its credit profile.
Entergy (NYSE:ETR)’s capital plan for 2024-2026 allocates $7.22 billion for power distribution and utility support, $8.08 billion for power generation, and $4.45 billion for power transmission. The company has consistently increased its dividend for nine consecutive years and currently offers a yield of 3.65%.
8. American Electric Power Company, Inc. (NASDAQ:AEP)
Number of Hedge Fund Holders: 35
American Electric Power Company, Inc (NASDAQ:AEP), headquartered in Columbus, Ohio, is a leading provider of safe, reliable, and affordable electricity. The company serves 5.6 million customers across 11 states through the country’s largest electric transmission system, which spans over 40,000 miles.
In Q2 2024, American Electric Power Company, Inc (NASDAQ:AEP) exceeded earnings expectations, reporting an EPS of $1.25 compared to the estimated $1.23. The company also reaffirmed its 2024 full-year operating earnings guidance range of $5.53 to $5.73 per share and maintained its long-term earnings growth rate target of 6% to 7%. American Electric Power Company, Inc (NASDAQ:AEP) has secured commitments from data center customers for over 15 gigawatts of additional load by the end of the decade.
With a diverse generation capacity of 29,000 megawatts, including 6,000 megawatts of renewable energy, American Electric Power Company, Inc (NASDAQ:AEP) is one of the best utility dividend stocks to buy. In July, the company declared a quarterly cash dividend of $0.88 per share on its common stock. This marks the company’s 457th consecutive quarterly common stock cash dividend, reflecting a consistent dividend payment history since July 1910. American Electric Power Company, Inc (NASDAQ:AEP) offers a dividend yield of 3.45%.
7. Duke Energy Corporation (NYSE:DUK)
Number of Hedge Fund Holders: 37
Duke Energy Corporation (NYSE:DUK), a Fortune 150 company headquartered in Charlotte, North Carolina, is a major energy provider in the United States. It supplies electricity to 8.4 million customers across six states and natural gas to 1.7 million customers in five states. Duke Energy Corporation (NYSE:DUK) owns 54,800 megawatts of energy generation capacity.
In the first quarter of 2024, Duke Energy Corporation (NYSE:DUK) exceeded earnings expectations, reporting an EPS of $1.44. This was $0.6 higher than the estimates. Duke Energy Corporation remains optimistic about its future and has reiterated its 2024 earnings guidance of $5.85 to $6.10 per share, alongside a long-term EPS growth target of 5% to 7% through 2028. The company’s growth strategy is further supported by a comprehensive five-year capital investment plan of $73 billion, effective cost recovery systems, and a proven track record of favorable regulatory results.
The company has been consistently distributing dividends to shareholders since 1986 on a quarterly basis. It currently has a forward dividend yield of 3.58%. In July, Duke Energy Corporation (NYSE:DUK) announced a quarterly cash dividend of $1.045 per share, representing a 2% increase from the previous dividend.
As of Q2 2024, Duke Energy Corporation (NYSE:DUK) was held by 37 hedge funds, making it one of the best utility dividend stocks to buy now.
6. The AES Corporation (NYSE:AES)
Number of Hedge Fund Holders: 46
The AES Corporation (NYSE:AES), a leading global energy company, is strengthening its position through strategic investments in renewable energy generation and new energy infrastructure projects. This company is leading the transition to clean energy by adding 976 MW of renewable energy capacity and securing contracts for 1 GW more.
The AES Corporation’s (NYSE:AES) Q1 investment across its two utilities nearly doubled compared to last year, driven by new rate structures and efforts to enhance system resilience and customer service. Looking forward, the company has clear visibility on $4 billion of its $5.3 billion total utility capital program, set to be completed by 2027.
In addition to this, The AES Corporation (NYSE:AES) is expected to grow its earnings by 8.5% and 8.8% in 2024 and 2025, respectively. Sales are forecast to increase by 5.1% and 3.4% during the same period. The company has also consistently outperformed earnings expectations in the last four quarters. The stock offers a competitive dividend yield of 4.22%, making it one of the best utility dividend stocks to buy.
5. Constellation Energy Corporation (NASDAQ:CEG)
Number of Hedge Fund Holders: 71
Constellation Energy Corporation (NASDAQ:CEG), a Fortune 200 company based in Baltimore, is a leading provider of clean, carbon-free energy solutions. The company’s portfolio, which is nearly 90% carbon-free, includes hydro, wind, solar, and nuclear power, capable of powering approximately 16 million homes.
In July, Constellation Energy Corporation (NASDAQ:CEG) declared a quarterly dividend of $0.353 per share on its common stock. According to the Q2 2024 results, net income was $2.58 per share and operating earnings were $1.68 per share, both of which surpassed the Q2 2023 figures.
Constellation Energy Corporation (NASDAQ:CEG) also raised its earnings-guidance range to $7.60-$8.40 per share due to strong performance in both wholesale and retail markets, along with ongoing benefits from managing market volatility.
Here’s what ClearBridge Investments said about Constellation Energy Corporation (NASDAQ:CEG) in its Q1 2024 investor letter:
“On a regional basis, the U.S. and Canada was the top contributor for quarter, with U.S. electric utility Constellation Energy Corporation (NASDAQ:CEG) and U.S. rail operator CSX the lead performers. Constellation Energy is primarily a nuclear generation company and is the largest producer of carbon-free electricity in the U.S., serving states including New York, Illinois, Maryland, Pennsylvania and New Jersey. The company’s combined generation capacity is more than 32 GW and 90% of annual output is carbon free. Constellation has been a beneficiary of AI and subsequent power demand as its 24/7 base load nuclear generation can get premium contracts.”
Coatue Management was the leading hedge fund investor in Constellation Energy Corporation (NASDAQ:CEG) as of Q2 2024. The hedge fund raised its stake in the company by 140% over the last quarter.
