The Top Electric Utility Companies Ranked Best to Worst

PUBLISHED Oct 20, 2022, 9:34:33 AM        SHARE

img
imgStaff Writer

The Top Electric Utilities in the U.S. and Their Dividend Yield

  • 1). American Electric Power Company (AEP) – 3.60%
  • 2). NextEra Energy (NEE) – 2.37%
  • 3). Duke Energy Corporation (DUK) – 4.43%
  • 4). Dominion Energy (D) – 4.01%
  • 5). The Southern Company (SO) – 2.72%
  • 6). Exelon (EXC) – 3.60%
  • 7). National Grid PLC (NGG) – 6.33%
  • 8). Sempra Energy (SRE) – 3.24%
  • 9). Entergy (ETR) – 3.91%
  • 10). NRG Energy (NRG) – 3.26%
  • 11). Edison International (EIX) – 4.88%
  • 12). AES Corporation (AES) – 2.71%
  • 13). PPL Corporation (PPL) – 3.54%
  • 14). CenterPoint Energy (CNP) – 2.67%

What are the best electric utility stocks to buy?

1). American Electric Power (AEP)

  • 5-Year APR – 3.45% (8th)
  • Volatility – 1.47% (1st)
  • Drawdown – -32.91% (1st)
  • Total States - 11 (3rd)
  • Total Customers – 5.5 million (9th)
  • Dividend – 3.60% (6th) American Electric Power grabs the top spot thanks to its low volatility, healthy dividend, and consistent price appreciation. So what makes AEP different from the other utilities? It looks like the difference comes down to the vision they see for AEP and committing to that vision. Their commitment to stakeholders is focused on stability and sustainability. Also, after reviewing numerous analyst presentations and company history, one commitment stands out on AEP’s analyst presentation:

“Active Management of the AEP Portfolio with the Primary Objective to De-risk and Simplify Our Business”

Stakeholder Commitment

Source: AEP Analyst Presentation, slide 13

This may sound like a cookie-cutter response, but looking at other utility companies, you can see that a utility’s business can get cluttered with a mix of transmission, natural gas, consulting, and electricity generation. The company’s sell of their Kentucky Operations looks to be in line with their commitment to renewable energy while the capital from the sell will be used to bolster their transmission business. As AEP’s analyst presentation points out:

“AEP is a pure play regulated utility”

They are focused on operational stability, power generation, power transmission, and renewable energy.

AEP CO2 emissions goals

Source: AEP Analyst Presentation, Slide 7

2).NextEra Energy (NEE)

  • 5-Year APR – 17.90% (2nd)
  • Volatility – 1.67% (6th)
  • Drawdown – -35.63% (3rd)
  • Total States - 14 (2nd)
  • Total Customers – 12 million (3rd)
  • Dividend – 2.37% (14th)

NextEra Energy stands out for its dedication to sustainable energy and its easy reporting for fixed income investors

NextEra has proven they have pushed to renewable energies as seen in the energy mix below. Since you cannot be sure how purchased power was generated, NextEra has pushed down purchased power by 10%. They have eliminated oil and replaced it with natural gas and have now incorporated Solar power at a significant percentage.

Energy Mix

There investor relations is unique with a whole page dedicated to income investor relations.

Their dividend policy is clearly shown in the page and compared to their industry peers. This shows a clear sign that they provide what their stakeholders are looking for:

NextEra Energy Dividend Policy

Source: NextEra Energy Fixed Income Investors Relations

3). Duke Energy (DUK)

  • 5-Year APR – 0.67% (9th)
  • Volatility – 1.50% (2nd)
  • Drawdown – -37.37% (4th)
  • Total States - 6 (7th)
  • Total Customers – 8.2 million (6th)
  • Dividend – 4.43% (3rd)

Duke Energy comes in at 3rd place by having low price volatility and a high dividend. Its 5-year APR is stagnant at 0.67% but it has a silver-lining in that it’s not negative. Duke Energy’s dividend policy states:

“The company remains committed to annual growth in the dividend, subject to the discretion and approval of the Board of Directors. Duke Energy's long-term dividend payout ratio target is between 65 and 75%.”

This is slightly higher than AEP’s dividend policy of roughly 60% and may partially be a causation of its stock price stagnation as capital projects do not have a high funding rate. Looking at capital projects, Duke Energy spent ~$10 billion on capital expenditure in 2021. This cost was offset by its issuance of $11 Billion in debt. Duke energy emphasized their regulatory and management update with a State-by-State rundown in their earnings presentation:

Duke Energy Regulatory and policy update

Source: Duke Energy Q2 Earnings Presentation

Duke Energy looks to be on top of both State and Federal regulatory policies and their focus on renewable energies.

Comparing the rest of the Electric Companies

You can see our comparison for the best electric utility companies down in this chart:

The Top Electric Utility Companies and their comparative metrics

Source: See references

How We Objectively Ranked These Electric Stocks

We ranked the top Electric Utility Companies by six criteria, similar to our article on water utility companies. Our six criteria are:

  • 5-year annual percentage return (APR) – We expect Utilities to grow steadily over long spans of time. If they do not, then their dividend is negated by a drop in share price.
  • 5-year volatility – standard deviation - Standard deviation measures the spread of daily changes in stock price. Investors are looking for stability when they invest in Utilities. Wide swings in price indicate price volatility and investor uncertainty.
  • 5-year volatility – Draw Down - Drawdown is the largest drop a stock has fallen from a localized peak. This is the worst-case scenario loss you would have endured in the last 5 years. Investors expect smaller drawdowns from safe stocks.
  • Revenue Diversity – States Utility Operates in - Utilities face regulations from different governing bodies. By operating in multiple locations, the Utility can diversify risk from State specific regulations. Some Utilities have additional regulation diversification by operating outside of the United States; however, we did not take countries into account as other countries have risks outside of just regulation including nationalization of the Utility, government acquisition of shareholder stocks, and governmental interference in Utility operation.
  • Revenue Diversity – Total Customers Served - Utilities face different outages due to weather events, transmission projects, and problems at power generation plants. By having more customers, the Utility can diversify these risks across different regions.
  • Dividend Rate of Return - Dividend return is of critical importance to investor using utilities to generate income. If you’re looking for the best dividend stocks, check out our top dividend stocks list

How to find the best electric utility stocks?

To find more insight on electric utility stocks, check out our top utility stock page. Our top utility stock page uses a more advance criteria system to find the top stock analysis from our platform. Our algorithms conduct performance, volatility and diversification checks on all of our stock analysts to showcase only the best utility stocks. Need more information on utilities? Check out these helpful articles:

Is the Power Sector a Good Investment?

The power sector is a great place to invest as an income investor. When comparing utilities to the broader market, utilities have objectively lower draw downs and volatility. Investing in the power sector has its drawbacks as the broader market has performed better in the last 10 years versus utilities.

Why are Power Stocks Growing?

After analyzing these multiple companies, certain power stocks are growing because:

  • They are managing their dividend policy. A good policy keeps some cash for capital projects while still providing stakeholders consistent income.
  • They are investing in renewable energies, reducing exposure to more volatile energy markets like coal, oil, and natural gas.
  • They have a strong focus within their company on their core business.
  • During market sell-offs, investors are moving into more stable utilities.

Can you buy stocks in electricity?

When you invest in electricity, you can invest in electricity power providers or in products that use electrical power. Electric vehicles are the most common electrical product investors search for. Historically though, investing in electricity is associated with utilities that provide electricity.

What are Electric Utility Stocks?

Electric utilities provide electricity to businesses, residents, and government institutions like military bases. Providing electricity is a multi-step process. Some utilities own a part of this process or another process like natural gas or water. Sempra Energy, for example, is heavily diversified into the transmission of natural gas. Providing electric is fulfilled in three parts Power Distribution

Source: atcllc.com

Transmission vs. Distribution

Source: ysgsolar.com
  • Power Distribution – Power distribution lines bring electricity to the end-user. A step-down voltage transformer is used to lower the voltage that is coming into the end user. The utility company that owns the power distribution also manages customers. They work with businesses to fulfill electrical hookup needs. They also manage the payment for electricity from the end-user.

References

AEP, Buy

American Electri...
Return: 13.80%


Sound investments
don't happen alone

Find your crew, build teams, compete in VS MODE, and identify investment trends in our evergrowing investment ecosystem. You aren't on an island anymore, and our community is here to help you make informed decisions in a complex world.

More Reads
The Best Water Utilities that Pay Dividends
Image

Water Utility stocks are great sources of dividends and can add more stability to an income portfolio

Intel (INTC) Stock – Too Cheap to Ignore?! | Dividend Investing
Image

Intel (INTC) stock is down 45% this year. The dividend yield has SWELLED up to 5%. As a dividend investor, looking for iconic dividend stocks, Intel stock may have too low of a stock price to ignore.

Dividend Kings In Focus: Lowe’s Companies
Image

Lowe’s traces its roots back to 1921, when LS Lowe founded a hardware store in North Wilkesboro, North Carolina.

Invest in Water Stocks
Image

Water stocks are a unique class of utility equities. Water and wastewater treatment and service is often a municipal function.

The 6 Best Infrastructure ETFs to Buy Now
Image

Infrastructure is necessary to make the world go round in our day and age. Both developed and emerging markets make use of energy and transportation to connect their people.

Alexandria Real Estate (ARE): Undervalued REIT
Image

Alexandria Real Estate (ARE): Undervalued REIT. The overall Real Estate Investment Trust (REIT) sector has been down a lot year to date. For example, the office REIT category has been down 21.9% since the start of 2022. In addition, the REIT Industrial category is down 18% year to date. This decline provides long-term investors with some opportunities in the Real Estate sector.

Up in smoke
Image

Who's ready to get baked

Why Don’t Investors Just Invest in the S&P 500?
Image

The S&P 500 has a long streak of positive returns. So why doesn’t everyone just invest in the S&P 500?

GME Stock Forecast | Price | Quote | News
Image

GameStop Corp. (NYSE: GME), is involved in the business of consumer electronics, video games, and gaming merchandise retailers.

Sonnet Biotherapeutics Holding Inc. | Sonn Stock Analysis
Image

A company called Sonnet Biotherapeutics has been developing a drug that treats inflammatory bowel disease known as Crohn's.

NRG Energy Stock Forecast
Image

NRG stock forecast regarding Return on Equity (ROE) is very bright and optimistic due to its solid income statement, robust balance sheet and rosy ESG outlook. But this stock has its own risks as well.

Recent Stock Purchase September 2022
Image

As you know by now I make a stock purchase every single month no matter what is going on in the world and despite the doom and gloom headlines. Perhaps I am naive or more of an optimist that we will get through these dark financial times somehow.

Will Nike Stock Recover?
Image

Nike is an American multinational corporation that design, develops, manufactures and markets footwear, apparel, equipment and services worldwide.

5 Income Stocks for Retirees
Image

When most people reach the age of 50, they start thinking about retirement. At this age, you need a strategy in place about housing, working, and income before retiring.

Mondelez International: Buy The Snack Giant
Image

Slow and steady wins the race. It holds true for investing in equities because of reversion to the mean. For instance, the latest group of new tech stocks were trading at bubble valuations and plummeted when the Federal Reserve started tightening.

Will it break through
Image

At&t feels good to me this week

10 Solid Picks For A Rocky Market - Zen Investor
Image

I searched for companies that are inexpensive relative to their fair value (margin of safety) and have above-average price and earnings growth prospects.

September 2022 Stock Considerations
Image

With the start of a new trading month, it is time, once again, for me to highlight some of my potential stock buys for September. With all the recent market volatility there is no shortage of stocks that are looking seemingly cheaper when compared to the closing months of 2021.

Monthly Dividend Stock In Focus: Prospect Capital
Image

Business Development Companies — or BDCs, for short — allow investors to generate income with the potential for robust total returns while minimizing the amount of tax that is paid at the corporate level.

The 5 Best Cheap Stocks To Buy Now
Image

Everyone loves to buy something on sale. For investors, that means finding undervalued stocks. Although available during bull markets, investors usually find more cheap stocks during bear markets. Prices drop, sometimes falling too far, making some stocks a deal, like in 2022. Hence, now is a good time for investors to scour lists and find the best cheap stocks to buy.

Resources for Publishers
Resources for New Investors
Boosted with BossCoin
Financial Literacy Leaders
user_profile
Tom Hamilton
user_profile
Wise Intelligent
user_profile
Mark Robertson
user_profile
Kevin Matthews II
user_profile
Akeiva Ellis
user_profile
Brendan Dale
user_profile
Kenneth Chavis IV
user_profile
Sharita Humphrey