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.
4. ConocoPhillips (NYSE:COP)
Number of Hedge Fund Holders: 72
ConocoPhillips (NYSE:COP), operating in the oil and gas sector, holds a strong portfolio of conventional assets across North America, Asia, Europe, and Australia. The company is well-positioned to benefit from the rising global energy demand.
ConocoPhillips (NYSE:COP) is projected to experience revenue growth, with an average increase of 11.2% forecasted for 2025. Moreover, the company’s projected earnings-per-share (EPS) growth of 16.39% signals improved profitability in the coming years.
Due to the company’s efficient operations and its strong cash position of $1.95 billion as of June 30, 2024, analysts have given the stock a consensus “Buy” rating. Price targets range from $120 to $156, with an average target of around $139.08, indicating a significant potential upside from the current price levels.
Here’s what Diamond Hill Capital said about ConocoPhillips (NYSE:COP) in its Q2 2024 investor letter:
“Other bottom contributors in Q2 included CarMax, Target Corporation and ConocoPhillips (NYSE:COP). Shares of oil and gas exploration and production company ConocoPhillips declined against a backdrop of lower oil prices in Q2, as well as concerns about the expensive though strategically sound acquisition of Marathon Oil.”
3. NextEra Energy, Inc. (NYSE:NEE)
Number of Hedge Fund Holders: 73
NextEra Energy, Inc. (NYSE:NEE) is a leading North American electric utility company. It generates, transmits, and distributes electricity to both residential and commercial customers across the continent. With a substantial generating capacity of approximately 33,276 megawatts, NextEra Energy, Inc. (NYSE:NEE) serves millions of customers in Florida and other regions.
NextEra Energy Inc. (NYSE:NEE) has a strong track record of dividend growth, increasing its dividend by around 10% annually over the past decade. The management is confident that the company’s high dividend growth will continue through at least 2026. This forecast is supported by projected earnings growth of 6% to 8% per year.
In Q2 2024, NextEra Energy, Inc. exceeded earnings expectations, reporting an EPS of $0.96 compared to the projected $0.953. The company continues to make strategic capital investments in low-cost solar generation and battery storage. These efforts, along with ongoing generation modernization projects, have helped reduce overall fuel costs. Since 2001, these initiatives have saved customers nearly $16 billion.
Here’s what ClearBridge Investments said about NextEra Energy, Inc. (NYSE:NEE) in its Q2 2024 investor letter:
“AI-related momentum was a key driver of performance in the second quarter, lifting the enablers in technology as well as holdings like renewable power producer NextEra Energy, Inc. (NYSE:NEE) that supply the increasing energy needs of data centers. Parts of the market lacking an AI connection, like our medical device holdings, underperformed despite no change to fundamentals. We have managed through several similar momentum periods over our tenure and have delivered long-term results for shareholders by staying true to an approach that emphasizes diversification across three buckets of growth companies (select, stable, and cyclical) and seeks to take advantage of attractive entry points into quality growth businesses.”
2. Vistra Corp. (NYSE:VST)
Number of Hedge Fund Holders: 92
Vistra Corp. (NYSE:VST), a leading utility company based in Irving, Texas, has significantly outperformed the market, with its stock price rising by 200% year-to-date. This impressive performance is largely attributed to the company’s acquisition of Energy Harbor, which expanded its nuclear generation and energy storage capabilities. As AI technologies advance and demand for clean energy rises, Vistra’s strong position in the nuclear power sector is becoming more advantageous.
Vistra Corp. (NYSE:VST) reported ongoing operations EBITDA of $1.4 billion for the second quarter, a strong performance despite lower wholesale energy prices. Moreover, the company reaffirmed its 2024 guidance range for ongoing operations adjusted EBITDA, set between $4.6 billion and $5.1 billion. Based on performance so far and the outlook for the rest of the year, the company is confident it will achieve results toward the upper end of this range.
Vistra Corp. (NYSE:VST) continues to follow the capital return plan set up in the fourth quarter of 2021. Since then, the company has returned about $5 billion to investors, including $4.25 billion in share repurchases through August 5 of this year. It expects to carry out at least $2.25 billion in share repurchases during 2024 and 2025.
Here’s what Fidelity Investments said about Vistra Corp. (NYSE:VST) in its Q2 2024 investor letter:
“An overweight stake in utility company Vistra Corp. (NYSE:VST) (+24%) was the top individual relative contributor. In Q1, the Texas-based independent power producer completed its acquisition of Ohio-based nuclear fleet operator Energy Harbor. The new Vistra, with its expanded geographic footprint, is in strong position to gain from the buildout of AI-capable data centers, which require enormous amounts of power to run. It is expected that local grids in the U.S. will need to invest heavily over the coming years to improve their power infrastructure and meet growing demand. In the nearer term, firms may choose to contract with independent power producers, like Vistra, rather than rely on the local provider.”
1. Exxon Mobil Corporation (NYSE:XOM)
Number of Hedge Fund Holders: 92
Exxon Mobil Corporation (NYSE: XOM) is on track to complete its 42nd consecutive year of dividend increases by the end of 2024. Although the company’s dividend growth has slowed in recent years compared to the early 2000s, Exxon is implementing strategies to promote ongoing growth.
The company’s corporate plan outlines a $14 billion increase in annual earnings and cash flow by 2027 due to cost savings, reinvestments, and low-carbon initiatives. Exxon Mobil Corporation (NYSE: XOM)’s low-carbon division is projected to play a significant role in future cash flow, with a goal of achieving a 15% return on investment from projects involving lithium, hydrogen, biofuels, and carbon capture and storage. This diversification aligns with the company’s commitment to a sustainable energy future.
Exxon Mobil Corporation (NYSE:XOM) has a strong financial position, backed by a payout ratio of 45.7%, which supports its dividend. Although fluctuations in oil prices could affect earnings, the company’s overall stability and 3.3% yield make it an attractive option for investors looking for a solid energy stock and a source of passive income.
Here’s what Madison Investments said about Exxon Mobil Corporation (NYSE: XOM) in its Q1 2024 investor letter:
“This quarter we are highlighting Exxon Mobil Corporation (NYSE:XOM) as a relative yield example in the Energy sector. XOM is a leading integrated oil and natural gas company. It has upstream assets that develop and produce oil and natural gas, along with downstream refining and chemical manufacturing assets. We believe it has attractive low-cost acreage in the Permian basin and has a sizeable growth opportunity in Guyana. Further, we think XOM has a sustainable competitive advantage due to size and scale, and its ability to integrate refining and chemical assets provides a low-cost advantage versus competitors.
Our thesis on XOM is that it will grow production volumes of oil and gas moderately over the next few years, while limiting excessive capital investment that plagued the industry from 2014-2020. Production growth will come from its 2023 acquisition of Pioneer Natural Resources, which is the largest producer in the Permian basin. XOM plans to double its Permian output by 2027, to 2 million barrels per day. Capital spending will be limited to $20-25 billion per year through 2027, which should allow for significant amounts of cash to be returned to shareholders including a $35 billion share repurchase program and continued dividend increases. Higher oil prices would provide a tailwind to our thesis but are not necessary. We think XOM can grow earnings and cash flow if oil prices remain above $60 per barrel…” (Click here to read the full text)
Overall, Exxon Mobil Corporation (NYSE:XOM) ranks first among the 10 best utility dividend stocks to buy. While we acknowledge the potential of utility companies, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than XOM but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
READ NEXT: $30 Trillion Opportunity: 15 Best Humanoid Robot Stocks to Buy According to Morgan Stanley and Jim Cramer Says NVIDIA ‘Has Become A Wasteland’.
Disclosure: None. Insider Monkey focuses on uncovering the best investment ideas of hedge funds and insiders. Please subscribe to our free daily e-newsletter to get the latest investment ideas from hedge funds’ investor letters by entering your email address below.
