3 Utilities Plays You Can Lean on During Volatility

Key Points

• Numerous threats to market stability loom, prompting some investors to proactively seek defensive plays to avoid losing the healthy gains achieved so far this year.
• Utilities stocks are a longtime favorite among investors looking for stability.
• Duke Energy, NextEra Energy, and Xcel Energy all offer various approaches to utilities play, and each has outperformed the S&P this year.

As the Trump administration's latest announcements about tariffs showed, the S&P 500 can still be skittish despite several months of fairly consistent gains and an improvement of more than 13% year-to-date (YTD). As trade tensions with China risk ratcheting up further, investors might expect other jolts to the market.

With the resurgence of tariffs, slipping consumer confidence, and a range of other metrics suggesting broader trouble for the economy, investors may want to proactively shift toward defensive plays.

Of course, while the market has been trending upward, a preemptive reallocation toward safer bets can mean missing out on gains. Fortunately, three companies in the utilities sector may offer the best of both worlds: performance beating the broader market this year alongside an expectation of stability in case of an impending downturn or sustained period of volatility.

Duke Signals Possible Increase in Nuclear Focus, Capitalizing on Regulatory Shifts

With a market value of nearly $100 billion, Duke Energy Corp. NYSE: DUK is among the country's largest electric power holding companies, serving customers in parts of the Midwest and the South. The company's core business was boosted in the latest quarter when Brookfield Infrastructure Partners NYSE: BIP invested $6 billion in 20% of Duke's Florida operations. The move improved Duke's credit profile and FFO-to-debt target to 15%, a 100-basis-point increase.

For Duke, a key question is whether and how to build out its nuclear energy holdings. The company recently released a comprehensive energy plan indicating it is considering adding new nuclear reactors to its energy profile in the next 12 years.

At the same time, with federal regulations shifting, the company's legacy fossil-fuel plants are likely to stay in play as well. Cost-recovery acts and nuclear production tax credits will improve Duke's customers' affordability and provide a stronger cash flow.

Duke's 3.36% dividend yield and two-decade history of dividend increases require cash flow stability. This is likely one of the reasons a majority of analysts rate DUK shares as a Buy, although the potential upside of 6% on top of nearly 18% returns YTD is likely another key factor.

NextEra's Combination of Utilities and Renewables Appeals to Institutional Investors

NextEra Energy Inc. NYSE: NEE is a company with two core operations: a regulated electric utility through its Florida Power & Light Company operations and a massive solar and wind renewable energy power firm. While not a pure-play utilities company, NextEra may appeal to investors seeking exposure to the renewables space.

The combination has yielded strong results—NextEra's adjusted EPS climbed by more than 9% year-over-year (YOY) in the latest quarter, all while the company has managed to keep residential bills well below the U.S. average.

With a significant backlog of about 30 GW of energy resources, NextEra is well-prepared to address the dominant player seeking access to its renewable energy: the hyperscale and data center industry. This may be why institutional owners have fallen in love with this stock, with nearly 2,000 institutions committing more than $17 billion in inflows to NEE shares over the last year and representing around 79% of total share ownership.

Thanks partly to its utility play, NextEra offers a dividend yield of 2.69%. Eleven out of 15 analysts across Wall Street have called NEE a Buy, signaling broad support even if market volatility increases.

Marshall Fire Resolution Frees Xcel to Focus on Data Center Business

The smallest of the three firms on this list, electric and natural gas provider Xcel Energy Inc. NASDAQ: XEL, still serves millions of customers across the central United States.

The company made headlines in recent months as it reached a $640-million settlement over lawsuits related to the 2021 Marshall Fire in Colorado.

While this is certainly not a positive development for Xcel, a bright spot for investors is that the uncertainty surrounding the outcome of the settlement has now been put to rest.

This also frees Xcel up to focus on its data center business—the company has a target of 2.5 GW by 2030—which has been driving significant earnings growth in recent periods. Investors seeking stability might see this as a bonus on top of the utility player's 2.84% dividend yield.