Power Up: 6 utility stocks yielding up to 8.9%

Utility stocks are the OG dividend payers. They are extremely dull. They are trustworthy. They’re always worth scouting for income – and I’ve got six 5%-plus dividends on deck to share with you today.

I am pleasantly surprised that we still Now is the chance to buy utilities at a reasonable price. Despite a year of concerns about a pending recession, utilities have been the worst sector of the market so far.

Excellent, We have value!

Utilities have taken on the foam I told about a year ago. Let’s look at the Forward P/E for this year and last year.

September 10, 2022: Utilities Forward P/E: 20.9 S&P 500 Forward P/E: 17.7

Sep 10, 2023: Utilities Forward P/E: 16.1 S&P 500 Forward P/E: 19.1

Not exactly “cheap”, but it’s a much better entry point than what we’ve had for some time.

The timing couldn’t be better than this. I think utilities will be the “it” investment in 2024. Any expert who is not predicting a full-blown recession is at least expecting an economic slowdown – which will slow down interest rates and, ultimately, lower rates as well.

This is bad news for high-priced tech and communications stocks that are headed into crazy 2023. But that’s good news for “bond proxies” like utility stocks that never really go out of style for next-level investors with an eye on a retirement reward.

I’ve recently talked about another opportunity in this sector – “growth utilities” – but today, I want to focus on yield. Let’s take a look at six utilities paying between 5% and 9% that we might consider stocking.

Northwestern Corporation (NWE, 5.0% yield) This is an example of how the utility sector is changing – that is, it is moving toward clean energy.

Northwestern provides electricity and natural gas to customers in South Dakota, Montana and Nebraska. It claims that 45% of the electricity generated for South Dakota comes from wind projects, and 58% of Montana’s electricity comes from carbon-free sources.

NWE shares, along with the rest of the utility sector, have fallen sharply recently amid wildfire concerns (among other headwinds). This helps, at least when it comes to shopping—whereas Northwestern
New
This is an extremely low volatility stock, it is also quite expensive. I checked it in March when it was trading at a price/growth-to-earnings (PEG) ratio of 4, although even after recent losses, it is still trading at a lofty 3. (Anything above 1 is considered overpriced.)

UGI

UGI
Corporation (UGI, 6.3% yield) Distributes natural gas to approximately 890,000 customers in Pennsylvania, West Virginia and Maryland, as well as electricity to approximately 63,000 customers in Pennsylvania. But it also has many other businesses, including retail energy marketing, power generation, HVAC, and even America’s largest retail propane distribution operation, which UGI fully acquired in 2019.

It is a mid-cap dividend aristocrat that has increased its payout for 36 consecutive years, and has paid dividends without blinking for nearly 140 years.

UGI has been an extremely poor performer in recent years and has lost almost half its value since 2019, in part due to its excessive exposure to Europe, where the war in Ukraine has sent energy prices skyrocketing, and In part due to delivery issues with AmeriGas.

outcome? Its 6%-plus dividend is well covered, UGI has a great payout track record, and it’s cheap – shares trade at 7x earnings estimates and 50% revenue.

In June, I talked about a note from a reader asking me why I prefer clean-energy payors NextEra Energy Partners

NEP
(NEP, 7.0% yield) For solar-and-wind names Clearway Energy (CWEN, 6.7% yield), After all, CWEN just raised its dividend, and analysts liked it better.

For one, I see analyst ratings as a great contrarian indicator – investors overvalue popular stocks and undervalue companies that professionals have shunned.

Also, it is not that CWEN is bad and NEP is good. Instead, I think CWEN is good and NEP is good GreatEspecially as it relates to dividend growth.

there is a possibility Both Stocks will find good homes in dividend portfolios as economic fears and Fed indifference prompt investors to flee into bond proxies.

Suburban Propane Partners LP (SPH, 8.9% yield) Hank Hill is one of the most interesting names in propane outside of. This national propane supplier has been in business for nearly a century, and it currently serves 700 communities in 42 states. But some of its recent business moves are also interesting. In 2022, it acquired a 25% equity stake in startup Independence Hydrogen, which provides clean hydrogen services. And this year, it spent $190 million on renewable natural gas assets in Arizona and Ohio.

The hot weather has weighed on stocks recently and impacted second- and third-quarter results. But in 2024, the return of cooler weather, as well as growing interest in yield, should increase interest in SPH, whose distributions account for just 60% of profits – more than a comfortable coverage ratio.

One thing to note on the charts is that an extended period of coiling may resolve with a sharp move.

Atlantica Sustainable Infrastructure (AY, 7.9% yield) is a UK-based company that specializes in – you guessed it – sustainable energy infrastructure. Specifically, 75% of its business is in renewable energy such as solar and wind, with the rest in storage, transmission infrastructure, natural gas assets and water assets.

The company recently released a solid report for the first half of its fiscal year 2023. Revenue increased 1.4% year-on-year on a comparable basis, and net profit increased by $4.1 million to $24.7 million. The dividend is 83% of Atlantica’s non-GAAP “cash available for distribution” (CAFD), which means that although its payout doesn’t appear to be in imminent danger, it could be on hold – the company has been in business for about a year now. Has halved since the last payment increase.

But there is a big question mark for prospective investors to consider. In February 2023, Atlantica’s board initiated a strategic review “to evaluate potential strategic options available to Atlantica to maximize shareholder value”. That strategic review is still in process, with no set timeline.

Brett Owens is Chief Investment Strategist contradictory outlook, For more great income ideas, get a free copy of their latest special report: Your Early Retirement Portfolio: Huge Dividends—Every Month—Forever.

Disclosure: None