In this article, we discuss 13 best utility dividend stocks to buy. You can skip our detailed analysis of the utility sector and the performance of dividend stocks, and go directly to read 5 Best Utility Dividend Stocks To Buy.
The utility sector in the US is a crucial part of the country's infrastructure, providing essential services to homes, businesses, and industries. The utility sector typically encompasses electric power, natural gas, water, and wastewater services. In 2023, the utility sector emerged as the weakest industry within the market. The S&P 500 Utilities index, a benchmark representing the performance of utility stocks, incurred a loss of approximately 10.6% over the course of the year. This contrasts starkly with the broader market sentiment reflected in the S&P 500, which recorded a substantial gain of 19.7% during the same period.
A recent Time report attributed the decline in the utility sector to the impact of climate change. This underscores a crucial reminder for investors that climate change is poised to challenge conventional notions about risk and return. Various industries, including agriculture, energy, and insurance, are confronting significant risks linked to climate change. Importantly, this doesn't imply that these sectors will become unsuitable for investment. On the contrary, companies within these industries are likely to necessitate capital to adapt to the challenges posed by climate change.
While utility stocks underperformed last year, a historical examination reveals that this has not been a consistent trend. According to Morningstar, utility stocks have demonstrated a robust performance, yielding an annual return of 11% since the aftermath of the 2008 financial crisis. This figure is noteworthy as it nearly aligns with the total return of the entire U.S. market, inclusive of dividends. In 2022, utilities exhibited a remarkable outperformance, surpassing the broader market by an impressive margin of 21 percentage points. This marked the sector's most notable relative performance since the year 2000.
Despite their poor performance in 2023, there is a positive aspect for investors seeking to invest in these companies that pay dividends. According to analysts at Morningstar, a significant number of them are currently undervalued. This suggests that there may be opportunities for investors to find stocks in this category that are trading below their perceived intrinsic value, potentially offering a favorable entry point for those looking to allocate funds. The Morningstar report also mentioned that the sector presents an appealing income potential. The median dividend yield stands at 3.7%, marking its highest point since 2013. This figure is consistent with the 20-year average, indicating that the sector is currently providing income opportunities in line with historical trends.
The downturn witnessed in the utility sector throughout 2023 is not merely a result of isolated factors but is rather indicative of the sector's broader objectives and challenges. According to a report from Deloitte, in the same year, the power and utilities industry in the US elevated its commitment to decarbonization significantly. This commitment was demonstrated through the deployment of unprecedented volumes of solar power and energy storage, aimed at enhancing both grid reliability and flexibility. According to the report, these positive trends and initiatives witnessed in 2023 are anticipated to persist and potentially gain momentum in 2024.
NextEra Energy Inc. (NYSE:NEE), Constellation Energy Corporation (NASDAQ:CEG), and American Electric Power Company Inc. (NASDAQ:AEP) are some of the best utility dividend stocks among others that are discussed below in our article.
13 Best Utility Dividend Stocks To Buy
A vibrant skyline illuminated by the lights of the electric utility company.
Our Methodology:
For this list, we used Insider Monkey’s database of 910 hedge funds as of Q3 2023 and selected utility companies that pay dividends to shareholders. From the resultant list, we picked 13 stocks with the highest number of hedge fund investors. The stocks are ranked in ascending order of hedge funds having stakes in them. Hedge funds’ top 10 consensus stock picks outperformed the S&P 500 Index by more than 140 percentage points over the last 10 years (see the details here).
Brookfield Renewable Partners L.P. (NYSE:BEP) is a global renewable energy company that focuses on owning, operating, and developing renewable energy projects across various technologies, including hydroelectric, wind, solar, and energy storage. It is one of the best dividend stocks on our list from the utility sector as the company has been growing its dividends for the past 12 years. It currently pays a quarterly dividend of $0.3375 per share and has a dividend yield of 51.4%, as of January 26.
The number of hedge funds tracked by Insider Monkey owning stakes in Brookfield Renewable Partners L.P. (NYSE:BEP) grew to 16 in Q3 2023, from 13 in the previous quarter. The consolidated value of these stakes is over $98.7 million. With over 3.3 million shares, Select Equity Group was the company's leading stakeholder in Q3.
Atmos Energy Corporation (NYSE:ATO) is an American utility company that operates in the natural gas distribution and pipeline business. The company declared an 8.8% hike in its quarterly dividend in November 2023 to $0.805 per share. This was the company's 39th consecutive year of dividend growth, which makes ATO one of the best dividend stocks on our list. The stock's dividend yield on January 26 came in at 2.83%.
At the end of Q3 2023, 17 hedge funds in Insider Monkey's database reported having stakes in Atmos Energy Corporation (NYSE:ATO), down slightly from 18 in the previous quarter. These stakes are collectively valued at roughly $73 million.
Consolidated Edison, Inc. (NYSE:ED) is a New York-based diversified energy company that primarily operates in the utility sector. The company is also involved in the distribution of natural gas. In January this year, the company achieved its 50th consecutive year of dividend growth, which makes ED one of the best utility dividend stocks on our list. It currently offers a quarterly dividend of $0.83 per share and has a dividend yield of 3.70%, as of January 26.
At the end of September 2023, 27 hedge funds tracked by Insider Monkey owned stakes in Consolidated Edison, Inc. (NYSE:ED), compared with 30 in the preceding quarter. The consolidated value of these stakes is over $350.3 million. Among these hedge funds, AQR Capital Management was the largest stakeholder of the company in Q3.
Edison International (NYSE:EIX) is an American public utility company that is involved in the generation of electricity through various sources, including natural gas, nuclear, and renewable energy. The company was a part of 28 hedge fund portfolios at the end of Q3 2023, up from 25 in the previous quarter, as per Insider Monkey's database. The total value of stakes owned by these hedge funds is over $1.15 billion.
Edison International (NYSE:EIX), one of the best utility dividend stocks on our list, offers a quarterly dividend of $0.78 per share, having raised it by 5.8% in December 2023. Through this increase, the company stretched its dividend growth streak to 20 years. The stock has a dividend yield of 4.65%, as reported on January 26.
UGI Corporation (NYSE:UGI) is a diversified energy company with operations in several segments of the energy industry. Over the past 10 years, the company has raised its dividends at a compound annual growth rate of 7% and has paid uninterrupted dividends for 139 consecutive years. In addition to this, it has been rewarding shareholders with 39 years of dividend growth. The company pays a quarterly dividend of $0.375 per share. With a dividend yield of 6.54% as of January 26, UGI is one of the best dividend stocks on our list from the utility sector.
UGI Corporation (NYSE:UGI) was a popular stock among hedge funds in the third quarter of 2023 as the company ended the quarter with 29 hedge fund positions, up from 22 in the previous quarter, as per Insider Monkey's database. The collective value of stakes owned by these hedge funds is roughly $292 million. With over 6.6 million shares, First Eagle Investment Management was the company's leading stakeholder in Q3.
Entergy Corporation (NYSE:ETR) is next on our list of the best utility dividend stocks. The American integrated energy company has raised its dividends for consecutive nine years and it offers a quarterly dividend of $1.13 per share. The stock's dividend yield on January 26 came in at 4.56%.
As of the close of Q3 2023, 33 hedge funds tracked by Insider Monkey owned stakes in Entergy Corporation (NYSE:ETR), which remained unchanged from the previous quarter. These stakes have a total value of over $747.5 million.
American Water Works Company, Inc. (NYSE:AWK) is a New Jersey-based traded water and wastewater utility company. It provides water and wastewater services to residential, commercial, and industrial customers across various states. In December 2023, the company declared a quarterly dividend of $0.7075 per share, which was in line with its previous dividend. Its dividend growth streak currently spans over 15 years, which makes AWK one of the best dividend stocks from the utility sector. The stock offers a dividend yield of 2.28%, as of January 26.
As of the end of Q3 2023, 35 hedge funds in Insider Monkey's database reported having stakes in American Water Works Company, Inc. (NYSE:AWK), up from 34 in the previous quarter. The collective value of these stakes is more than $894 million. Impax Asset Management was the largest stakeholder of the company in Q3.
The Southern Company (NYSE:SO) is a leading energy company in the US that is primarily engaged in the generation, transmission, and distribution of electricity. On January 18, the company announced a quarterly dividend of $0.70 per share, which was in line with its previous dividend. Overall, it maintains a 22-year streak of consecutive dividend growth, which places SO on our list of the best utility dividend stocks. As of January 26, the stock has a dividend yield of 4.04%.
At the end of September 2023, 35 hedge funds owned stakes in The Southern Company (NYSE:SO), up from 32 in the preceding quarter, according to Insider Monkey's database. The consolidated value of these stakes is over $553.2 million.
