We recently published a list of 10 Best Utility Dividend Stocks To Buy. In this article, we are going to take a look at where Entergy (NYSE:ETR) stands against other 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.
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).
A high power electrical transformer station with transmission lines connecting to a power grid.
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%.
Overall, ETR ranks 9th on our list of best utility dividend stocks to buy. While we acknowledge the potential of ETR as an investment, 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 ETR but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.
