Safe Utility Stocks for Retirement
In retirement investing, having a portfolio that can provide a safe and steady stream of income is of the utmost importance. On this matter, one group of companies clearly stands out: utilities. Here is a look at seven safe utility stocks for retirement income.
Utility Stocks That Pay Dividends
There are many reasons why retirement investors should consider utility stocks. In my opinion, the best part about utility stocks is their stable and recurring business. Utility companies include gas, water, electric, and other infrastructure firms. What they provide are necessities to consumers and businesses.
In other words, the demand for their products and services is relatively inelastic to how the economy is doing. Think about it: people may not be buying as many new cars when the economy is in a downturn, but they will still need to heat their homes and turn the lights on at night. This is why many utility companies have remained profitable for decades, despite the ups and downs in the macro environment.
Second, in the utilities sector, competition is limited. Usually, when one company is running a profitable business, other companies will want a piece of the action too. As competition increases, the incumbent would lose some of its market share and power.
For utility companies, however, things can be quite different. For starters, becoming a utility company requires huge initial costs. Building the infrastructure necessary to deliver gas, water, or electricity to households and businesses is very expensive. Moreover, the industry is highly regulated. When one service provider is in place, it’s unlikely that the government will grant the permission to build a second set of infrastructure. The result is that utility companies are either monopolies or oligopolies in their operating regions.
A stable business and limited competition means utility companies can afford to distribute some of their profits to shareholders in the form of dividends. There are plenty of dividend-paying companies trading in the stock market but, in order for them to keep paying dividends into the future, they need a stable business model. Utility companies have that stability in their business. As a matter of fact, some utility companies have been paying uninterrupted dividends for decades. For investors seeking a long-term income stream, utility stocks are definitely worth taking a look at.
For those that are searching for the “best utility stocks to own” or “utility stocks to buy in 2017,” here is a list of the seven best utility stocks for retirement investors.
List of Utility Stocks for Retirees
| Company Name | Ticker Symbol | Dividend Yield |
| WEC Energy Group Inc | WEC | 3.41% |
| Consolidated Edison, Inc. | ED | 3.5% |
| Duke Energy Corp | DUK | 4.14% |
| National Grid plc | NGG | 4.56% |
| American Electric Power Company Inc | AEP | 3.47% |
| Southern Co | SO | 4.66% |
| Brookfield Infrastructure Partners L.P. | BIP | 4.47% |
Utility Stocks for Retirement Income
1. WEC Energy Group Inc
WEC Energy Group Inc (NYSE:WEC) is an electric and natural gas utilities company serving customers in Wisconsin, Illinois, Michigan, and Minnesota. With 69,000 miles of electric distribution and 46,000 miles of gas distribution, it is one of the largest utility companies in the Midwest.
At of the end of March, WEC Energy was serving 1.6million electric customers and 2.8 million gas customers. The company also has a 60% ownership in American Transmission Company LLC. More than 99% of WEC’s earnings come from regulated operations.
One of the reasons to consider this utility stock is the growth in its business. For 2017, WEC energy is targeting earnings per share (EPS) growth of between five and seven percent. In the long term, the company expects to achieve earnings per share growth at a compound annual growth rate of five to seven percent.
WEC Energy pays quarterly dividends of $0.52 per share, translating to an annual yield of 3.41%. While the yield may not seem that impressive compared to the high-yield utility stocks, note that the company has raised its quarterly payout by 73% over the past five years. (Source: “Dividend History for ticker WEC,” WEC Energy Group Inc, last accessed May 5, 2017.)
2. Consolidated Edison, Inc.
Consolidated Edison, Inc. (NYSE:ED) is one of the largest investor-owned utility companies in the U.S., with $48.0 billion in assets and $12.0 billion in annual revenues. Headquartered in New York City, the company operates through four main subsidiaries: Consolidated Edison Company of New York, Orange & Rockland Utilities, Inc., Con Edison Clean Energy Businesses Inc, and Con Edison Transmission, Inc.
Consolidated Edison Company of New York is responsible for generating the bulk of the company’s business. The subsidiary has 3.4 million electric customers, 1.1 million gas customers, and 1,600 steam customers.
Con Edison is a blue-chip name. The company’s origin can be traced to the founding of the New York Gas Light Company back in 1923. In more recent decades, ED stock has established itself as a dividend giant.
The utility company has paid increasing dividends for 42 consecutive years, making it a “dividend aristocrat.” Right now, Con Edison pays $0.69 per share on a quarterly basis, translating to an annual yield of 3.5%. (Source: “Dividend History,” Consolidated Edison Inc, last accessed May 5, 2017.)
3. Duke Energy Corp
Duke Energy Corp (NYSE:DUK) is an electric power holding company that supplies and delivers electricity to approximately 7.4-million customers in the Southeast and Midwest United States. The company also distributes natural gas to more than 1.5-million customers in Ohio, Kentucky, Tennessee, and the Carolinas.
Duke Energy has been around for a century, but the company is still growing its business. From 2013 to 2016, it achieved approximately five-percent annual growth in adjusted earnings in its core business. Going forward, the company expects to generate four to six percent of EPS growth every year through 2021.
Duke Energy is a dividend giant, having paid consecutive quarterly dividends since 1926. With a quarterly payout of $0.855 per share, the company is currently yielding 4.14%.
4. National Grid plc
When it comes to utility stocks, American investors don’t have to focus exclusively on U.S. companies. For instance, National Grid plc (NYSE:NGG) is an international electricity and gas company whose American Depository Shares trade on the New York Stock Exchange.
National Grid is a utility company that operates in the U.K. and the United States. In the U.K., it is mainly a transmission company, with electricity assets in England and Wales, and gas assets across all of Great Britain. In the U.S., it is primarily a distribution company, delivering electricity to approximately 3.4 million customers in Massachusetts, New York, and Rhode Island.
One thing to note is that, while most utility stocks pay quarterly dividends, National Grid distributes on a semi-annual basis. Still, its 4.56% dividend yield is nothing to sneeze at.
5. American Electric Power Company Inc
As the name suggests, American Electric Power Company Inc (NYSE:AEP) focuses on electricity. Its 40,000+ miles of electricity transmission network is the largest in the country. Moreover, the company has more 765-kilovolt extra-high-voltage transmission lines than all other U.S. transmission systems combined.
AEP does not make headlines very often, but the company has been a favorite among long-term income investors. The company started paying quarterly dividends in June 1910, and has never missed a single payment. That’s over 400 consecutive dividend payments! (Source: “AEP Cash Dividends Per Share By Year,” American Electric Power Company Inc, last accessed May 5, 2017.)
Right now, the company is yielding 3.47%. Its $0.59 per share of quarterly dividends are usually paid on or about the 10th day of every March, June, September, and December.
6. Southern Co
When it comes to finding the best utility stocks for long-term investors, one cannot ignore Southern Co (NYSE: SO).
Southern Co is one of America’s largest gas and electric utility holding companies. Headquartered in Atlanta, Georgia, the company serves approximately nine million electric and gas customers through 11 state-regulated utilities. Southern Co has 46,000 megawatts of electric generating capacity and 1,500 billion cubic feet of combined natural gas consumption and throughput volume.
When it comes to rewarding income investors, the company’s objective is to deliver regular, predictable, and sustainable growth. Looking back, Southern Co has done a pretty good job at it.
Since 1948, the company has paid steady or increasing dividends. Moreover, it has raised its payout in each of the last 15 years. Southern Co is currently yielding a decent 4.66%.
(Source: “Investor Fact Sheet,” Southern Co, last accessed May 5, 2017.)
7. Brookfield Infrastructure Partners L.P.
Brookfield Infrastructure Partners L.P. (NYSE:BIP) is a bit different from the other utility stocks. It owns and operates a diversified portfolio of infrastructure assets, including those in utilities, transport, energy, communications, and sustainable resources sectors. Unlike the other utility stocks on this list, Brookfield is structured as a limited partnership.
The partnership’s asset acquisitions are based on value. It actively manages the assets and may also opportunistically sell some assets to reinvest capital into the business.
Compared to other utility stocks, Brookfield doesn’t have a very long history. The partnership was founded less than 10 years ago. But, since its inception in 2008, Brookfield has delivered compounded annual total returns of 15%.
The partnership currently pays quarterly cash distributions of $0.435, translating to an annual yield of 4.47%.
Final Thoughts On Utility Stocks
At the end of the day, keep in mind that, while utility stocks can offer high yields, they are not risk-free. One of the things that could affect utility companies is interest rates. Because of the large infrastructure investments required, utility companies often carry a sizable amount of debt. So when interest rates are rising—like what’s happening right now—it could increase utility companies’ burden to service their debt.
Also, because utility stocks are largely viewed as income investments, one of their competition is bonds. When interest rates are low, the yield offered by utility stocks made them attractive. But, with increasing interest rates, their appeal could be dampened.
Still, investors have been using high-dividend utility stocks to boost their portfolio return for decades. Due to the stability in their business, there is still an argument for owning some utility stocks in a retirement portfolio.