We recently published a list of 10 Most Profitable Utility Stocks to Buy Now. In this article, we are going to take a look at where Middlesex Water Company (NASDAQ:MSEX) stands against other most profitable Utility stocks to buy now.
Utility companies supply basic utilities like water, gas, and electricity. The demand for these stocks’ services is often steady, even during recessions, which makes them defensive investments.
Morningstar energy and utilities strategists Travis Miller and Andrew Bischof see reasons to invest in utility companies, stating that while the 2024 surge paused in October as interest rates began to rise, utility stocks are still holding on to their stellar performance from the previous year. Most US utilities are trading near the estimates of their fair values as of mid-February.
Utility firms generally generate substantial dividends and appear to be expensive at present. Miller & Bischof stated:
“Utilities continue to grow their dividends at an impressive rate. Nearly all utilities have already announced dividend increases for 2025 or are on track to announce increases in the first quarter. We expect 5% median sectorwide dividend growth in 2025.”
According to JP Morgan’s report in 2024, utility stocks have become unanticipated market leaders, outperforming only the technology sector and yielding a total return of over 17%. The adoption of AI, the growth of data centers, the proliferation of EVs, and the outsourcing of manufacturing are the main drivers of this rally, which is aided by a rapid shift in the demand for electricity. Data centers alone already account for 4.5% of U.S. electricity usage, which is expected to rise to almost 8% by 2030 after two decades of stagnant demand. Given the growing number of extreme weather events, the U.S. electric grid, which is largely over a century old, is unprepared to handle this surge and will require significant investments in capacity, stability, and resilience. Businesses engaged in storage, grid upgrading, and generation stand to gain from this shift. The industry is trading at 18.7x projected earnings, which is 13% less than the broader market, showing that it will continue to be valuable even after the recovery. Utility dividend yields may become more attractive if interest rates decline, which could lead to more growth. Utilities present a strong alternative for investors looking to gain exposure to the expansion of AI-related infrastructure without following tech prices, supported by real demand and structural investment requirements.
The broader market’s utilities sector has performed well over a range of historical periods. The year-to-date return is 3.61%. In the last year, the sector’s return was strong at 17.65%. When considering longer periods, the annualized return is 1.86% for the first three years and 6.13% for the fifth. At 5.68%, the 10-year annualized profit is a little lower. The utilities sector exhibits steady growth in comparison to the overall market, with large short-term gains but a more moderate long-term return, showing its defensive nature and steadiness during volatile times. The resilience of the 5-year performance is noteworthy.
Utility stocks may be more secure than other sectors, but they are nevertheless vulnerable to a halt in expenditure on thirsty data centers. Long seen as market safe havens, utility equities are suddenly uncertain as artificial intelligence changes the demand for electricity. According to Scotiabank’s Andrew Weisel, “electricity is a very basic need for most individuals and most companies,” underscoring the industry’s longstanding resiliency. However, as U.S. consumption dominates the world and is expected to exceed 1,000 TWh annually by 2030, as per the IEA, this stability is becoming increasingly connected to AI-driven data centers. Earnings risks are increased by a slowdown in AI capital expenditures, such as a giant tech company owned by Bill Gates reducing some of its programs. Weisel cautioned that “investors will be skeptical,” while Nikki Hsu of Bloomberg Intelligence pointed out that “requests for rate hikes would be rejected by regulators” during a recession.
Close-up of a faucet gushing out clean, clear water, emphasizing the quality of services provided by the company.
Our Methodology
For this list, we screened for utility companies with a net profit margin over 10%, which suggests sound financial health and excellent cost management. The stocks are ranked in ascending order of their net profit margin as of the most recent quarter.
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).
Middlesex Water Company (NASDAQ:MSEX)
Net Profit Margin: 23.11%
Middlesex Water Company (NASDAQ:MSEX) owns and operates regulated water utility and wastewater systems across the United States. The company works in Delaware, Pennsylvania, and New Jersey, which are in the east. The business is divided into two operating segments: non-regulated and regulated. Water collection and distribution to residential, commercial, industrial, and fire safety customers are all part of the regulated industry. Contract services for running private water and wastewater systems are part of the unregulated industry. The Regulated division and residential customers account for the majority of the company’s revenue.
Middlesex Water Company (NASDAQ:MSEX)’s revenues for 2024 were $191.9 million, up $25.6 million from 2023’s $166.3 million. The New Jersey Board of Public Utilities’ approved base rate increase in March 2024 and higher weather-driven customer demand were the main causes of the $19.9 million increase in Middlesex System revenues. Tidewater Utilities, Inc. had a $4.5 million increase in revenue in its Delaware System, mostly as a result of growing customer demand and weather-related customer growth. Higher supplemental contract services resulted in a $0.7 million increase in non-regulated revenues. In 2024, the firm reported a net income of $44.4 million, which was $12.8 million more than in 2023.
The cost of operations and maintenance in 2024 was $92.4 million, up $9.3 million from $83.1 million in 2023. The main causes of this increase were higher labor costs from yearly wage increases, higher energy costs from rising water demand, and higher legal, financial, and regulatory costs. Its net profit margin soared by 23.11%, ranking it sixth on our list of the Best Utility Stocks.
Overall, MSEX ranks 6th on our list of the 10 Most Profitable Utility Stocks to Buy Now. 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 time frame. There is an AI stock that went up since the beginning of 2025, while popular AI stocks lost around 25%. If you are looking for an AI stock that is more promising than MSEX but that trades at less than 5 times its earnings, check out our report about this cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.