Best utility stocks of July 2024
“Verified by an expert” means that this article has been thoroughly reviewed and evaluated for accuracy.
“Verified by an expert” means that this article has been thoroughly reviewed and evaluated for accuracy.
BLUEPRINT
Updated 9:00 a.m. UTC July 25, 2024
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Investors looking to add reliable, defensive value stocks to their portfolios can find excellent opportunities in the utilities sector. It includes companies that provide services related to electricity, gas, water, steam and sewage removal.
Because many utility companies require expensive infrastructure to operate, they often carry high debt loads and benefit from lower interest rates. The best utility stocks have reasonable valuations based on fundamental metrics like the price-to-earnings ratio and generate consistent profits.
Here are the best utility stocks of 2024 that have significant upside potential and bullish ratings from Wall Street analysts.
Best utility stocks
- NRG Energy (NRG).
- Brookfield Infrastructure Corp. (BIPC).
- Clearway Energy (CWEN, CWEN.A).
- Atlantica Sustainable Infrastructure (AY).
- Suburban Propane Partners (SPH).
Why trust our investing experts
Experienced stock analysts select our best stock selections based on screening for several must-have metrics. These metrics often include but are not limited to forward price-to-earnings, risk, earning stability and Wall Street “buy” consensus. Among all of our stock selections, the average return beats the S&P 500. But investors should note that before purchasing any stocks, it’s important to do plenty of research and ensure their selections align with their financial goals and risk tolerance. You can read more about our methodology below.
- 5,000+ companies screened.
- 3 levels of fact-checking.
- 3-step editorial review.
NRG Energy (NRG)
Brookfield Infrastructure Corp. (BIPC)
Clearway Energy (CWEN, CWEN.A)
Atlantica Sustainable Infrastructure (AY)
Suburban Propane Partners (SPH)
Compare the best utility companies
Methodology
The best utility stocks included above all trade on a major U.S. stock exchange and meet the following criteria:
- Consensus analyst recommendation of “hold” or “buy or better.” A strong number of analyst ratings of “hold” or “buy or better” indicates an expectation the stock will perform well.
- Market capitalization of at least $1 billion. If a company has a leading market share and competitive advantages in a sizable industry, it will have a market cap of greater than $1 billion. Companies with market caps under $1 billion typically get very little media and analyst coverage and scrutiny and can be higher-risk investments than larger, more visible companies.
- An Altimeter overall grade of at least a B. In selecting the best stocks for this list, we applied a screen, considering only stocks rated a B or better by Altimeter. The overall grade takes into account profitability, earning stability, valuation and earning expectations. Grades of B or higher for both are stocks that are ranked in the top quarter of nearly 5,000 stocks in Altimeter’s stock database. This indicates that these companies have strong valuations with the ability to improve returns.
- Net profits. Profitable companies have demonstrated they have a viable business model and are less exposed to risks such as fluctuations in interest rates and cyclical economic downturns. If a company is not profitable, it is eventually forced to rely on debt or dilutive share offerings to fund its operations.
- Dividend yield of at least 3%. Investors typically turn to the utilities sector for reliability, stability and income. A dividend yield of at least 3% makes a utility stock attractive even if it doesn’t have a particularly impressive growth profile.
Why other stocks didn’t make the cut
Utility stocks are known for their stability, but that also means the valuation upside for many utilities sector stocks is limited. For a utility stock to be worthwhile, it must have either a unique growth opportunity or an attractive dividend yield. Some of the best utility stocks have both.
Many utility stocks may be attractive to value investors at first glance because they have low earnings multiples. However, if a utility stock has stagnant or declining revenue or an extremely high debt load, it may be a value trap rather than a value stock.
Final verdict
The utilities sector has plenty of stocks with attractive dividend yields and the possibility of generating robust long-term gains for investors. Utility stocks may be a particularly attractive option in 2024 given market expectations for falling interest rates.
One of our top recommendations for the best utility stocks is NRG Energy, which has an attractive valuation, a long-term growth runway and a 3% dividend. There are no major flags indicated by Altimeter’s risk assessment tool.
How to buy utility stocks
Investors who are comfortable analyzing individual utility stocks can create a personalized portfolio by choosing those they believe will outperform their peers. For example, you can buy shares of the best utility stocks included above. However, before buying shares of an individual stock, ensure you understand the company's business and financial metrics and are comfortable using basic fundamental valuation strategies. You can reduce risk by diversifying your investments into many stocks instead of concentrating on a few.
You can also invest in utility stocks via utilities sector exchange-traded funds, such as the Utilities Select Sector SPDR Fund (XLU). Utilities sector ETFs provide an easy way to add diversified exposure to dozens of utility stocks at a time. However, while utility stock ETFs help reduce the risks associated with individual utility stocks, they also limit the upside investors can experience if they focus on a handful of top-performing companies. Utility stock ETFs also charge management fees in the form of expense ratios that can eat into returns over time.
Frequently asked questions (FAQ)
Yes. The three primary defensive stock market sectors are utilities, consumer staples and health care. Customers need water, gas and electricity at all stages of the economic cycle.
Yes. The utilities sector hasn’t historically been a market leader, but investors can turn to the utilities sector to make their investment portfolio more defensive or to find reliable dividend stocks that generate steady income. Investors can also improve their returns by identifying utility stocks that will likely outperform their peers.
Yes. Utility stocks have historically performed relatively well during periods of elevated U.S. inflation. Gains in utilities sector shares have generally outpaced gains in the consumer price index during those periods, making utilities sector stocks an effective hedge against inflation.
Blueprint is an independent publisher and comparison service, not an investment advisor. The information provided is for educational purposes only and we encourage you to seek personalized advice from qualified professionals regarding specific financial decisions. Past performance is not indicative of future results.
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