Even in a recession, people will still pay for their utilities
- These 6 dividend-paying utility stocks will likely survive well if there is a recession. They will keep paying their dividends and their stock prices will tend to do better than average as a result.
- NRG Energy (NRG): Texas power utility with 20% forecast earnings trading for 9.6 times forward earnings and a 3% dividend yield.
- Edison International (EIX): This electric utility company has a 4.3% dividend yield and a forward P/E of 14 times with good earnings growth.
- Pinnacle West Corporation (PNW): This Southwest U.S. utility has a 4.5% dividend yield, higher than its 4-year average of 3.79%, which implies its reversion to the mean target market value is higher.
- FirstEnergy Corp (FE): This Akron, Ohio-based utility, which covers 5 mid-Atlantic states from Ohio to New York, pays a 3.7% dividend yield, and has an attractive forward P/E multiple of just 15.8.
- The AES Corporation (AES): This US and overseas utility has good earnings growth, an 11 times forward P/E multiple, and a stable 3.1% dividend yield which has been raised in each of the past 9 years.
- UGI Corporation (UGI): This propane company is trading for 12.2 times forward earnings with good earnings growth along with a 3.5% dividend yield.
Utility stocks offer investors a good comfort for several reasons. For one, the utility often has a monopoly to deliver energy to its customers. This makes its revenue and cash flow secure enough to maintain growing dividends. Second, they tend to have reasonable valuations.
Our list of utility stocks has low price-to-earnings (P/E) multiples ranging from 9 to 16 times earnings. They also have good dividend yields that range from 3 to 5%.
Let’s dive in and look at these utility stocks.
|PNW||Pinnacle West Corporation||$77.95|
|AES||The AES Corporation||$21.31|
NRG Energy (NRG)
NRG Energy (NYSE:NRG) is a Houston-based integrated power company that trades for just 11.6 times forward earnings (for 2023) and also has a 3% yield and growing dividends. It is one of the largest U.S. independent power producers. It has 6 million customers and generates 18 gigawatts of power generation capacity primarily in Texas.
NRG stock is attractive to bargain-focused investors due to its dividend yield with nine years of continuously paid dividends.
Analysts forecast $3.96 in earnings per share (EPS) this year and $4.76 next year. So, trading at $45.98 at the start of May 25, NRG stock trades for 9.7 times 2023 earnings estimates.
Moreover, the company has plenty of FCF to cover both its dividends and buyback programs. Last year it generated $493 million in cash flow from operations and paid out just $319 million in dividends plus $48 million in buybacks.
This makes NRG stock one of the best utility stocks.
Edison International (EIX)
Edison International (NYSE:EIX) is an electrical power generator in Southern, Central and Coastal California with over 15 million customers. The company is forecast to produce $4.52 in EPS this year and $4.85 in 2023.
At the opening price of $68.04 on May 25, this puts EIX stock on a forward P/E of 14 times. Moreover, given its $2.80 annual dividend, EIX stock has a dividend yield of 4.3%.
EIX has paid a dividend for the past 18 years on a quarterly basis. In fact, it has raised the annual dividend every year for the past 18 years. That should give investors comfort that this will occur in the future, recession or not. This fact will allow EIX to hold up well during a possible economic downturn.
The fact is that everyone needs to buy electricity and pay their electric bills even during a recession. That makes EIX one of the best utility stocks to own now to weather a possible recession.
Pinnacle West Corporation (PNW)
Pinnacle West Corp (NYSE:PNW) is a Phoenix, AZ-based electric utility with good earnings growth and a reasonable valuation. Revenue is forecast to rise 3.1% in 2023 to $3.89 billion and 4% in 2024 to $4.05 billion. In addition, analysts forecast that EPS will rise to $4.22 next year, and in 2024 it should gain 6.4% to $4.49 per share.
As a result, as of May 25, at $77.79, PNW stock trades on a forward 18.4 times P/E multiple. That is slightly lower than its average P/E over the past five years. Morningstar says that its average has been 17.7 times.
In addition, PNW has a $3.40 dividend which puts PNW stock on an ample dividend yield of 4.5%. In fact, PNW has paid dividends annually for the past 28 years and in the last 10 years, the dividend has risen each year.
Given these factors and the company’s underlying stable growth, this looks like one of the best utility stocks to own in case there is a recession.
FirstEnergy Corp (FE)
FirstEnergy Corp (NYSE:FE) is an Akron, Ohio electric utility that operates in six Mid-Atlantic states from Ohio to New York with 6 million customers. The utility has good sales and earnings prospects this year and next.
Analysts forecast sales to rise 3% and EPS by 6% to $2.55 in 2023. The next year, analysts predict it will rise another 7.3% to $2.74.
At $43.24 per share on May 25, this puts FE stock on a forward P/E multiple of 17 times. That is lower than its average forward P/E of 23.6 over the past five years, according to Morningstar.
In addition, the company pays a solid $1.56 dividend per share, giving it a yield of 3.61%. In addition, the company has paid dividends for the past 24 years, although it has not raised them in a good number of years.
This makes FE stock a solid choice although not necessarily one of the best utility stocks.
The AES Corporation (AES)
The AES Corp (NYSE:AES) is a U.S. and global power distribution and generation company. Based in Arlington, Virginia, it operates in a number of countries beyond the U.S. They include Puerto Rico, El Salvador, Chile, Colombia, Argentina, Brazil, Mexico, Central America, the Caribbean, Europe and Asia.
AES Corp has good sales and earnings prospects. For example, this year sales will rise by 1.7%. Earnings will gain 6.5% to $1.62. Next year, AES is forecast to see sales up 4.2% and EPS is forecast to gain 8.9% to $1.76.
At $21.18 on May 25, that puts AES stock on a forward P/E of just 13.1 times for 2023. Moreover, given its 63 cent dividend per share, the forward dividend yield is 3.1%.
UGI Corp (UGI)
UGI Corp (NYSE:UGI) is a propane and natural gas distribution and marketing company, and an electric power plant company based in King of Prussia, PA.
UGI stock is forecast to show 10.6% sales growth this year but a slight decline in EPS. 2023 revenue is expected to rise 4.1%, and 2023 EPS is expected to rise 10.8% to $3.24.
At $41.22 per share on May 25, UGI stock trades on a forward P/E of just 12.7 times forward 2023 earnings. In addition, it pays a solid 3.5% dividend yield, after having raised the dividend in each of the past 18 years.
These factors make UGI one of the best utility stocks to own in case there is a recession this year or next.
This post originally appeared at InvestorPlace.
On the date of publication, Mark Hake did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Mark Hake writes about personal finance on mrhake.medium.com, Newsbreak.com and Beehiiv.com.