Utility stocks are the OG dividend payers. They’re delightfully dull. They’re dependable. They’re always worth scouting for income—and I’ve got six 5%-plus dividends on deck to share with you today.
I’m pleasantly surprised that we still have a chance to buy utilities for reasonable prices right now. Despite a year’s worth of worries about a pending recession, utilities have been the market’s worst sector year-to-date.
Perfect. We have value!
Utilities have worked off the froth I pointed out a year ago. Let’s just look at the forward P/Es from this year and last.
Sept. 10, 2022: Utilities Forward P/E: 20.9 S&P 500 Forward P/E: 17.7
Sept. 10, 2023: Utilities Forward P/E: 16.1 S&P 500 Forward P/E: 19.1
Not quite “cheap,” but it’s a much better entry point than we’ve been afforded for quite some time.
The timing couldn’t be better. I think utilities will be the “it” investment come 2024. Any experts not predicting an outright recession are at least expecting an economic slowdown—that will slow interest rates and, eventually, even tug rates lower.
That’s bad news for high-priced tech and communication stocks that have gone berserk in 2023. But it’s good news for “bond proxies” like utility stocks that never really go out of style for next-level investors with their eye on the retirement prize.
I’ve recently talked about another opportunity in the sector—“growth utilities”—but today, I want to focus on yield. Let’s look at six utilities, paying between 5% and 9%, that we might consider stocking up on.
NorthWestern Corporation (NWE, 5.0% yield) is an example of how the utility sector is transforming—that is, it’s moving toward clean energy.
NorthWestern provides electricity and natural gas to customers in South Dakota, Montana and Nebraska. It boasts that 45% of the electricity it generates for South Dakota comes from wind projects, and 58% of Montana’s electric generation comes from carbon-free sources.
NWE shares have fallen off a cliff of late, along with the rest of the utility sector, amid wildfire concerns (among other headwinds). That at least helps the buy case—while Northwestern is a delightfully low-volatility stock, it’s also pretty pricey. I examined it back in March when it was trading at a price/growth-to-earnings (PEG) ratio of 4, though even after recent losses, it’s still trading at a lofty 3. (Anything above 1 is considered overpriced.)
NWE Still Overpriced Despite Lagging Far Behind the Sector
UGI Corporation (UGI, 6.3% yield) distributes natural gas to roughly 890,000 customers in Pennsylvania, West Virginia, and Maryland, as well as electricity to roughly 63,000 customers in Pennsylvania. But it also has a variety of other businesses, including retail energy marketing, electricity generation, HVAC, and even AmeriGas—America’s largest retail propane distribution operation, which UGI acquired outright in 2019.
It’s a Mid-Cap Dividend Aristocrat that has raised its payout for 36 consecutive years, and paid dividends for nearly 140 years without blinking.
UGI has been a gross underperformer in recent years and has lost roughly half its value since 2019, in part thanks to outsized exposure to Europe, where the war in Ukraine sent energy prices skyward, and in part to delivery issues with AmeriGas.
The upshot? Its 6%-plus dividend is well-covered, UGI has a stellar payment track record, and it’s cheap—shares trade at a lean 7 times earnings estimates and 50% of revenues.
Back in June, I talked about a note from one of my readers asking me why I prefer clean-energy payer NextEra Energy Partners (NEP, 7.0% yield) to solar-and-wind name Clearway Energy (CWEN, 6.7% yield). After all, CWEN just raised its dividend, and analysts like it better.
For one, I view analyst ratings as a great contrarian indicator—investors tend to overvalue popular stocks and undervalue companies that the pros have shunned.
Also, it’s not so much that CWEN is bad and NEP is good. Instead, I think CWEN is good and NEP is great, especially as it pertains to dividend growth.
A Dividend Doubler in 10 Years Is Nice, But a Quadrupler Is Even Better
It’s likely that both stocks will find good homes in dividend portfolios as economic fears and Fed dovishness send investors fleeing into bond proxies.
Suburban Propane Partners LP (SPH, 8.9% yield) is one of the most interesting names in propane outside of Hank Hill. This national propane supplier has been doing business for nearly a century, and it currently services 700 communities in 42 states. But also interesting are some of its most recent business moves. 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.
Warmer weather has kept a cap on shares of late and weighed on second- and third-quarter results. But in 2024, a return to colder weather, as well as heightened interest in yield, should drive interest in SPH, whose distribution accounts for just 60% of profits—a more-than-comfortable coverage ratio.
Also worth noting on the charts is an extended period of coiling that could resolve with a sharp move higher.
Suburban Propane Is Prone to Big Explosions
Atlantica Sustainable Infrastructure (AY, 7.9% yield) is a U.K.-based company that specializes in—you guessed it—sustainable energy infrastructure. Specifically, 75% of its business is in renewable energy like 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 2023. Revenues were up 1.4% year-over-year on a comparable basis, and net profits jumped from $4.1 million to $24.7 million. The dividend accounts for 83% of Atlantica’s non-GAAP “cash available for distribution” (CAFD), which means that while its payout doesn’t appear in imminent danger, it could remain frozen—the company has now gone about a year and a half since its last payout hike.
But would-be investors have a big question mark to consider. Back in February 2023, Atlantica’s board initiated a strategic review “to evaluate potential strategic alternatives that may be available to Atlantica to maximize shareholder value.” That strategic review is still in process, with no set deadline.
Give Me 4 Minutes, I’ll 4X Your Retirement Income
Strategic reviews can end in results as drastic as selling off the company or spinning off parts, or as banal as making no changes whatsoever. So it’s no surprise that the end of these reviews can spur massive moves in a stock—higher or lower.
Investors who prefer to avoid this kind of casino drama might consider looking elsewhere.
The whole point of a high-yield retirement portfolio is not having to worry about existential crises—not just bear markets or economic slumps, but companies that suddenly aren’t sure whether they need to restructure everything.
I don’t want to have to keep my eyes on an Investor Relations website every day, wondering whether my dividend portfolio’s about to get blown up.
Fortunately, I don’t have to—and you don’t, either.
My “Perfect Income” portfolio attacks retirement investing from a different angle. Rather than trying to time the market and chase trends, we target high-yield holdings (roughly 4x the S&P!) that walk their own path, no matter what the Fed, Congress or the rest of the world throws their way.
So, what makes these dividends “perfect”? Well, they have to have a few things in common:
- They DO pay consistently, predictably and reliably.
- They DO survive—and even thrive—in market crashes.
- They DO deliver double-digit returns, with safe, secure investments.
- They DO require minimal management time—just a few minutes every month!
- They DON’T involve day trading, buying on margin or any other risky strategy.
- They DON’T involve gambling on penny stocks, Bitcoin or buying puts and calls.
Let me show you the stocks and funds you need to stabilize your retirement. But more importantly, let me teach you more about this incredible strategy itself and make you a better investor in the process!
Take control of your financial legacy today. Click here for my newly updated briefing on the Perfect Income Portfolio!