Let's be honest, utility stocks are not the most exciting thing to invest in. They are probably some of the most boring companies, but that doesn't mean they are bad investments. In times like these, the boring companies tend to not only hold their value but actually increase it.
As a result, we have compiled a list of three utility stocks that could help stabilize your portfolio until the more 'exciting' companies make their bounce back.
American Electric Power Company (NASDAQ: AEP) is an electric public utility holding company engaged in generating, transmitting, and distributing electricity in the U.S. The company generates its power from various sources such as coal, solar, wind, nuclear, and hydro. The company is committed to generating 50% of its electrical output from renewables by 2030. Between 2022 and 2026, AEP forecasts capital expenditure of $38 billion, with $8.2 billion allocated to regulated renewables.
The company has reaffirmed its long-term earnings-per-share (EPS) growth rate of 6-7% per annum. This is a solid growth rate, especially with rising interest and inflation rates, coupled with lower GDP growth. In Q1 2022, AEP saw earnings increase by 24% from $575 million to $714.7 million due to higher rates and favorable hedging activities.
Black Hills Corporation (NYSE: BKH) operates as an electric and gas utility company. The Electric Utility segment generates, transmits, and distributes electricity, while the Gas Utility segment only distributes natural gas via interstate pipelines. Since 2005, Black Hills corporation has retired 123.3 megawatts of coal generation while adding 288.8 megawatts of owned renewable resources during the same period.
Black Hills Corporation has a wider target range for its future growth than AEP. Between 2023 and 2026, it expects an EPS growth rate between 5% and 7%. Once again, this is a reasonable level for companies in the current environment. During 2016-2021, earnings have grown at a CAGR of 7.2%, emphasizing the stability of the company's earnings growth which is forecast to remain at a similar level. However, the company has a significant amount of debt maturing in the years 2025-2035. This will lead to much lower net profits and could impact future dividend payments.
Northwest Natural Holding Company (NYSE: NWN) provides regulated natural gas distribution services to residential, commercial, and industrial customers in Oregon and Southwest Washington. It also owns a renewables company and a water company. Like the other utility stocks on this list, Northwest Natural Holdings is investing in a green future. The firm is on track to meet or exceed its carbon savings goal of 30% by 2035 and to be a provider of carbon-neutral energy by 2050.
Northwest Natural Holding forecasts the lowest five-year EPS growth of the listed stocks at 4-6% per annum. This is likely due to gas prices falling in the future from their current elevated levels, thereby lowering profits. 80% of the company's revenues come from natural gas, meaning this will have a significant impact. However, some of this damage could be offset as the company continues to invest in its water utility division through capital spending and acquisitions. The company will also profit from a tighter and growing housing market in its territory. A survey found that 80% of prospective home-buyers prefer gas to electricity for heating and cooking, showing strong demand for the company's products.
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