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Utility Stocks - Best Utility Stocks to Buy

Posted on Monday, December 9th, 2019 by Matthew Sweeney

Utility Stocks - Best Utility Stocks to Buy

Utility stocks are at the core of many different trading strategies, largely because many traders and investors are well aware that utilities are at the core of our economy. The world depends on reliable utilities, energy systems, and other sources of infrastructure. Achieving further economic objectives, such as the manufacturing and distribution of goods, would be utterly impossible without utilities.

Top Utility Companies in the World

Naturally, determining which utility stocks are worth purchasing requires investors to consider many different factors. In addition to addressing their own trading restraints and objectives, investors will need to use various technical and fundamental indicators over time. However, with the right set of tools by their side, even relatively new traders can successfully trade utility stocks, find the most active stocks, and exploit this relatively independent market for profit.

There are many questions about trading utility stocks that new and even significantly experienced traders are likely to have. Anyone who hopes to make a profit will need to pay close attention to the finer details and understand what makes trading within the utility sector different from trading stocks in general.

Utilities Sector

There are quite a few things that make the process of trading utilities stock unique. Unlike certain luxury brands—which typically move up and down as the market cycles between boom and bust—the values of utility stocks are not always as strongly correlated with the broader economy. While agricultural companies may use less water and manufacturing companies may use less electricity during times of low economic performance, there still remain an incredible number of factors that can influence the direction these stocks are moving.

What is Considered a Utility?

A utility stock is a security that is connected to any company primarily operating within the utility industry. These regulated utilities will include sources of electricity, natural gas, water, and other essential components of infrastructure. Utility companies usually do not sell directly to consumers, instead, these companies will primarily focus on securing municipal or other government contracts and selling to major industrials.

There are quite a few reasons investing why an investor may want to consider including utility stocks in their broader portfolio. In addition to holding their value better than other securities in the stock market during recessions, many of the stocks within the utility industry have a natural (or artificially preserved by the state) monopoly. This helps ensure that the stocks will be even more likely to preserve their value over time.

Top Utility Companies in the World

The following top global utility companies have consistently demonstrated strong growth over time.

Duke is an energy company that has remained within a value range of $66-$96 for many years. When compared to some stock choices, this range exhibits a relative degree of predictably. Additionally, as demand for utilities increases in winter and summer, Duke’s value can experience predictable seasonal swings. With a 4.33 percent dividend yield, it can be an attractive choice for investors.

While National Grid has experienced a slight value decrease over the past few years, several technical indicators suggest a medium-term upswing is likely to occur. Furthermore, the attractive 5.44 percent dividend yield offered by National Grid makes it possible for investors to be a little more patient with their holding. With a market cap of nearly $200 billion, it is somewhat surprising National Grid is not a more well-known name among traders.

Contrary to some of the other “old reliable” utility stocks featured in this list, Iberdrola can be considered to be a growth stock that has had a noticeable value increase over the past few years. In fact, between 2017 and 2019, the stock nearly doubled in value, rising from around $23 to a peak near $42. The stock also trades on the over the counter market, rather than via the NYSE, meaning that it often moves in a somewhat unique (and more volatile) direction. Iberdrola investors typically have an above-average level of risk tolerance.

Excelon is a utility stock traded on the NASDAQ, which has outperformed the NYSE over the past few quarters. The stock has a respectable market cap of about $43 billion and a moderate (though still reliable) dividend yield of 3.30 percent. The stock is an excellent selection for utility traders who are hoping to add diversity to a portfolio that is otherwise full of ETFs and market giants.

Listed on the NYSE, NEE is a company that has achieved an impressive rate of growth that has been remarkably consistent. Between 2016 and 2019 from $105 to more than $230 in value, with surprisingly no major dips in price. It is not often that a trader can find a stock that has reliable growth and a significantly low level of volatility. Additional, with a market cap beyond $100 billion and a dividend yield beyond 2 percent, NextEra Energy may be one of the most reliable securities available on the market.

These are just a few of the utilities stocks that an investor might want to consider. Before making any financial decisions, it’s important to examine all of the unique market variables mentioned above. Additionally, the automatic increase in diversification offered by trading utility ETFs should not be overlooked.

Things to Consider when Trading within the Utilities Sector

The best utility stock trading strategies will require the average shareholder to monitor both technical and fundamental changes as time goes on. The utility market is often highly dependent on events unfolding in the news. If any geopolitical occurrence—whether a war, a new tariff, a trade deal, or anything else—can be even indirectly linked to the value of energy, the value of all stocks within the energy stock market will likely (at least temporarily) change. Thus, it will be crucial for all utility stock traders to pay close attention to current events and consider developing when stories when judging whether a stock is overpriced or underpriced.

When comparing natural gas and other utility companies, a shareholder will also need to consider whether these stocks offer dividends. Dividends are common within the utility industry, largely because many of these companies are quite mature and are hoping to attract long-term investors rather than day traders. While day trading utility stocks are certainly possible and profitable for some, most individuals who are considering the utility market will want to hold their stocks for at least a few years. Looking at average dividend values relative to stock price and looking at how dividends distributions are structured (scheduled, P/E, other metrics, etc.) will help you make much better choices.

Lastly, whether you are a portfolio manager or an investor who is simply looking at various industries for the best growth stocks, you will want to consider all unique economic and structural forces affecting each utility security. Factors such as the utility’s monopoly status, reliance on specific geopolitical events, and anticipated exposure to risk cannot be overlooked. This industry is one that is distinctive in many different ways, with a very interesting relationship between price and market supply and demand. Therefore, it may be worth practicing trading on paper before risking any actual capital. The better you can understand why a utility stock has a certain value and why its value is evolving in a certain way, the more likely you are to achieve a substantial return on investment.

There is no denying that the utility industry is one that can be difficult to navigate. If you are hoping to simply benefit from the relative security of the utilities industry as part of a dividend investing strategy, then you may want to consider investing in a utility stock ETF. As you may find when trading within other industries, utility ETFs offer the immediate benefit of diversifying within the industry without requiring a significant amount of research.

However, while utility stock ETFs are useful for traders who hope to engage a more passive approach, active utility stock traders will still need to find methods for determining which utility stocks are winners and which stocks are most likely to lose value over time. In order to see if there are any standouts currently available on the market, investors look at the stock’s historical price trends, the role the company plays within the utility industry, external reasons the stock’s value may have changed, and various other quantitative and qualitative factors. Though only some are among the biggest stock gainers, each offers value in its own unique way.

Utilities ETF

Exchange traded funds are among the easiest ways for a trader to suddenly obtain a diverse portfolio and gain an active stake in many different companies. ETFs are ideal for both passive and active traders who may not be willing to risk guessing which specific utility company is most likely to increase in value. Rather, ETF investors want to have a direct investment in the utilities industry as a whole and perhaps benefit from some of the many dividends that are currently available.

When deciding which utility ETFs to add to your portfolio, there are many factors to consider. Look at the average level of volatility relative to the average rate of return. This will make it much easier for you to predict future movements and carefully balance your exposure to risk with the pursuit of strong returns. When investing in securities, you want to consider whether the expected dividend yield justifies any risks that come with investing in utilities. You may want to diversify even further and blend your utility ETF holdings along with ETFs contained within other, weakly correlated industries.

Is Investing in Utilities a Good Idea?

Whether any type of financial investment can be considered a good idea will depend on subjective factors that are entirely specific to the individual trader. However, there are quite a few reasons to consider diverting at least a portion of your portfolio to utility stocks. These stocks have high dividend yields and often enjoy the benefits of a monopoly. Utility stocks can withstand some recessions and are typically secure, long-term investments.

Companies Mentioned in This Article

CompanyCurrent PricePrice ChangeDividend YieldP/E RatioConsensus RatingConsensus Price Target
Duke Energy (DUK)$96.28flat3.93%19.93Hold$96.00
National Grid (NGG)$66.29flat3.18%17.31BuyN/A
Iberdrola (IBDRY)$43.52flat2.69%19.05HoldN/A
NextEra Energy (NEE)$263.72flat1.90%39.60Buy$241.85

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