The utility sector remains my favorite sector to cover with the dividend growth sector watch lists. Utility companies generally offer a mix of predictable and reliable earnings growth, and often have defined shareholder return policies that spells out dividend growth expectations and targeted dividend payout ratios for the companies.
These factors make the utility sector ideal for income investors, and makes forecasting dividend growth and income easier than for some of the other sectors in the stock market.
What Is A Utility Stock?
A utility stock is the stock of a company that provides a public utility service to its customers. This service generally comes in one of three forms: Electricity (generation and distribution), Natural Gas (transportation and distribution), or Water (municipal water and wastewater).
- Electric Utilities are companies that are involved with the generation, transmission, or distribution of electricity to residential, commercial, or industrial customers.
- Electricity is generated in many ways, including by: Coal Power Plants, Natural Gas Power Plants, Nuclear Power Plants, Wind Turbines, Photo-voltaic (Solar) Hydroelectric (Dams, Tidal), Geothermal, and Bio-Mass.
- Natural Gas Utilities are companies involved in the storage, transportation, and distribution of natural gas to customers.
- Water Utilities are companies that treat water for potable use and distribute that water to customers. I have created a separate spreadsheet dedicated strictly to the water utilities.
My watch list will focus on utilities that operate in the gas and electric utility businesses.
Utility Stock Example
Utility stocks have long been considered one of the best “widow and orphan” type stocks for a portfolio. They generally have lower volatility than other types of businesses, and offer higher dividends making them an attractive investment option for income-seeking investors.
An example of this is the popular utility stock Consolidated Edison $ED, which is a gas & electric utility located in the northeastern United States.
Consolidated Edison is a Dividend Champion, with a 44-year streak of increasing dividends. As you can see from the FAST Graph, the company is a slow grower, with just 1.8% annualized EPS growth over the last 20 years.
One would think that this slow growth rate would lead the an under-performance compared to the market, but with dividend reinvestment, Con-Ed actually beat the returns of the S&P.
Over the last 20 years, Con-Ed returned 7.1%, compared with just 6.2% from the market. This was the result of effective dividend reinvestment, which more than doubled the share count over time.
Even more impressive is the income produced by the stock, as Consolidated Edison produced nearly $15,000 in dividend income (with dividends reinvested) compared with just over $5,000 from the S&P.
Utilities generally aren’t going to get you rich quick, but for the patient investor they can be excellent stocks to hold long-term in a portfolio.
Dividend Income & Total Return Projections
As part of my ongoing research on the utilities, I maintain a watch list of what I consider the thirty best dividend growth stocks from the sector.
This spreadsheet includes information about the length of dividend growth streaks, S&P credit rating, 52-week highs and lows, current yield, historical dividend growth rates, analyst EPS and growth estimates, my dividend growth projections, current PE, relative valuation, company guidance for dividend payout ratios, and estimated yield on cost and total return projections for each company.
This watch list was updated with new information as of March 20, 2018. Please keep in mind that the information contained in the document is subject to change and will not be updated unless otherwise noted.
I am sharing this spreadsheet with my readers for informational purposes only and this list is not intended as a buy recommendation for any of the companies mentioned.
Here is the link for a PDF of that spreadsheet.
My hope is that this document proves useful to those looking for investment ideas from the sector, and I encourage people to bookmark this page for future reference.
Utility Sector Top Ten Articles
My coverage of the utility sector includes several articles highlighting my picks for the best dividend growth utilities in the market.
Here are the articles I have written on Seeking Alpha covering the sector to date:
May 6, 2018
December 30, 2016
May 2, 2016:
December 21, 2015:
June 17, 2015:
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