Top Utility Stocks With Outstanding Dividend Yields, Perfect for Investing $2,000 Immediately
Utilities are often thought of as secure income investments. In the past, they were referred to as "widow-and-orphan stocks" on Wall Street. Though the utility sector provides different avenues for dividend investing, and some of these stocks have gained widespread popularity beyond just the "widows and orphans."
Three of the top utility stock picks today are Black Hills Corporation (BKH), NextEra Energy (NEE), and Dominion Energy (D). Each stock is appealing for its unique reasons. Let's delve deeper.
Black Hills Corporation is a Dividend Champion
The Dividend Champions list is a prestigious group of companies that have raised their dividends annually for at least 25 consecutive years. Although only a few utilities are on this list, Black Hills Corporation is one of them. Today, its yield is a noteworthy 4.2%, far exceeding the 1.2% yield of the S&P 500 index or the average utility's 2.6%, with the Utilities Select Sector SPDR ETF (XLU) as a benchmark. If you appreciate high yields and conservative companies that move at a steady pace, Black Hills Corporation is for you.
Black Hills is a traditional regulated utility, offering electric and natural gas services. They serve over 1.3 million customers across Arkansas, Colorado, Iowa, Kansas, Montana, Nebraska, South Dakota, and Wyoming. Although there's nothing remarkable about Black Hills Corporation, that's what makes it appealing to conservative income investors. It should be noted that, of late, leverage has increased, but management is working on it, as the debt-to-EBITDA ratio has been on a downward trend since reaching a peak in 2022. If you're looking to add a low-risk, steady-growing utility with a decent yield to your portfolio, Black Hills Corporation fits the bill.
NextEra Energy is a Dividend Growth Machine
If dividend growth stocks are more appealing to you, NextEra Energy will pique your interest. This company has increased its dividends annually for three decades, with an average annualized increase of over 10% over the past decade. This growth is significantly more than average for the utility sector, where half that level of growth is considered good. Even better, management is optimistic about maintaining an annual 10% dividend growth through at least 2026.
The compelling factor here is that NextEra Energy operates two competitive businesses. Its main function is a regulated utility operation in Florida, which has long benefited from population growth. This results in more customers, providing an easier justification for rates and capital expenditures to regulators. In addition to this core division, NextEra Energy has developed one of the world's largest clean energy businesses, which is expected to drive growth as solar and wind power replace dirtier fuel options like coal. The long-term potential is vast given that the energy transition is likely to span decades. The downside is that its yield is relatively low at 2.8%, but it's higher than the utility average.
Dominion Energy is revamping its business
Dominion Energy offers the highest yield of this trio, approximately 5%. This is well above the utility average, but it should serve as a caution flag. That's because Dominion Energy is undergoing an extensive business transformation. In reality, this transformation began decades ago with Dominion exiting the oil business. However, the most recent move was to focus solely on electricity operations, which involved selling natural gas utilities to Canada's Enbridge. This step is now complete, and Dominion is now focused on reducing debt, building a large offshore wind project, and lowering the dividend payout ratio to align with its competitors.
Dominion is making good progress on all fronts, but the transformation is not yet complete. Despite this, it is committed to maintaining the current dividend. It's worth noting that the last major divestiture resulted in a dividend cut.
All in, investors are compensated well for waiting for Dominion Energy to complete its latest business transformation. However, this transformation is different because there's little left but electricity operations. Once the payout ratio is below 70% or so, investors can reasonably expect Dominion Energy to return to being a slow-growth utility. If you're willing to invest in a "turnaround play," this high-yielder could be a good fit for your portfolio.
Utility stocks offer a range of dividend choices
Even within an industry considered dull and sleepy, there is substantial variety. When it comes to dividend stocks and utilities, you actually have a wealth of different options to consider. Black Hills Corporation offers an attractive yield from a conservative Dividend Champion. NextEra Energy is an appealing dividend growth stock with a bright future. And Dominion Energy is a "turnaround play" that will pay you well to wait for the turnaround to play out.
Utilizing your provided words, here are two sentences that can be derived from the given text:
- If you're interested in investing money for financial growth and are drawn to the stability of the utility sector, you might consider investing in companies like Black Hills Corporation, NextEra Energy, or Dominion Energy, which have shown a strong track record in dividend payments.
- To diversify your investment portfolio in the finance sector, you might consider utilities as they provide a range of possibilities for dividend investing, such as selecting dividend champions like Black Hills Corporation or dividend growth stocks like NextEra Energy.
