Top 6 Electric Utility Stocks to Supercharge your Income

If you are a proactive investor, you are always looking for the next opportunity to make significant returns on investments (ROI). Electric utility stocks provide the potential to supercharge your income; their strong performance during the pandemic dip, despite reduced demand, has almost “shocked” investors into focusing on this sector of the energy industry.

Governments must ensure all utilities are affordable, so they use power purchasing agreement (PPA) contracts to regulate electricity supply and price for the contract duration. The price control PPA component prevents electric companies from charging market prices and potentially making huge profits, but the contracts offer several benefits that make electric utilities attractive to investors. For example, PPAs enable price stability, reduced competition, pre-negotiated rate increases, and guaranteed returns on investments in some instances.

Electric Utility Sector Potential

The International Energy Agency (IEA) has targeted a 2035 deadline for ending the production of fossil fuel burning cars, replacing them with electric vehicles (EVs) powered by renewable energy. The IEA target has influenced mandates like the Californian Executive Order requiring new cars sold in the state after 2034 to be zero-emission. In addition, we are likely to see more decarbonization mandates as governments fight global warming and these green policies guarantee increased future demand for clean electric energy making electric utility stocks appealing.

Different types of companies make up the electric utility sector, and they make money through three methods;

Generation– The production of electricity
Transmission– Moving electric energy along the grid to distribution points
Distribution– Supplying electricity to end-users

Some electric utility companies participate in all three stages.

Regulations

Apart from price control, electric utility companies also face environmental regulations. The most stringent guidelines apply to companies emitting greenhouse gases during power generation. In addition, regulations promote decarbonization – the fastest format of which is renewable energy production. Renewables like solar, wind, and hydroelectricity are the best options for sustainable growth. State and Federal governments incentivize utilities investing in renewable energy, and it poses the least sustainability risk.

The regulated insulation of some electric utility companies from several market factors through PPAs helped them remain stable during the COVID-19 stock market crash. These factors, plus the huge growth potential, helps explain the optimism about their future performance.

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We selected six stocks that can supercharge your income based on the electric utility sector stability and the potential for significant returns. They can improve the stability, security, diversity, and profitability of your investment portfolio.

The six electric utility stocks include;

The Southern Company (NYSE: SO)- Best long position stock

Eversource Energy (NYSE: ES)- Best growth potential

Ameren Corporation (NYSE: AEE)- Biggest potential price appreciation

Exelon Corporation (NASDAQ: EXC)- Best affordable high cap stock

NextEra Energy (NYSE: NEE)- Best sustainability stock

Duke Energy Corp (NYSE: DUK)- Best for dividends

Stock	Market Cap (Billion)	Average Rating	Price	Avg Price	1 Yr Return	5 Yr Return	P/E Ratio (TTM)	Forward P/E Ratio	EPS	2022 EPS Estimate	Dividend Yield
The Southern Company (NYSE: SO)	66.88 B	Hold	$63.16	$68.39	24.41%	8.17%	21.76	17.84	3.54	1.2	4.18%
Eversource Energy (NYSE: ES)	28.41 B	Buy	$82.67	$91.39	6.15%	11.09%	24.4	20.21	3.63	4.09	2.92%
Ameren Corporation (NYSE: AEE)	21.49 B	Buy	$83.57	$91.70	11.44%	12.97%	22.98	20.69	3.64	4.04	2.64%
Exelon Corporation (NASDAQ: EXC)	48.15 B	Buy	$49.24	$54.43	47.03%	11.02%	49.74	15.06	0.99	3.74	3.11%
NextEra Energy (NYSE:NEE)	158.31 B	Buy	$80.70	$91.20	70.18%	7.74%	52.04	2.52	1.6	2.74	1.89%
Duke Energy Corp (NYSE: DUK)	78.74 B	Buy	$98.46	$108.09	7.95%	25.24%	25.74	18	3.83	5.47	4.00%

Performance at market close: September 24, 4:00 PM EDT

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The Southern Company (NYSE: SO)- Best long position stock

Investors love Southern Company because of its consistent dividend yields of 4%, outperforming the S&P 500 average (1.35%) and the electric utility sector (3.15%) for the last decade. The next decade’s performance will surely top 10-year bond and inflation rates. The hold rating of this highly capitalized utility stems from estimated earnings per share reductions for 2022 (1.2), but this is merely a short-term setback for a premium, dividend aristocrat stock. The share is a little pricey, but the high current and forward P/E tell us earnings are expected to increase. Price targets are $68.19 (average), $76 (high), and $52 (low) versus its $62 current price.

Although Southern pays out 85% of earnings, it remains highly capitalized due to stable revenues, and it is investing $40 billion in several growth-oriented projects. The Vogtle project consists of two nuclear power plants and takes the most significant portion of that expenditure. Like many other construction projects in the last 24 months, it is behind schedule, but it is set for early to mid-2022 completion and will increase revenues drastically once completed.

Southern (SO), despite its name, has operations all over the country. Critically the company operates in states poised for construction growth like Texas, Florida, Georgia, Arizona, Washington, and Nevada. Increased residential and commercial utility revenues always follow construction booms.

Recent ratings from Mizuho and Morgan Stanely are; underperform and underweight, but the long-term future looks bright for Southern. Should the price fall in the short term, the dividend yield will increase, protecting shareholder value, and (SO) will be upgraded to buy. If the price remains constant or increases, more capital gains are on the horizon with significant growth potential in the pipeline.

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Eversource Energy (NYSE: ES)-Best growth potential

Eversource has set the most ambitious carbon-neutrality target of the electric utility sector with a 2030 deadline. This decarbonization goal drastically exceeds the 2050 carbon-neutrality targets of similar companies. In addition, Eversource’s 2030 target requires aggressive investments in renewables that will replace fossil fuel-powered generation capacity and add additional generating capacity.

The company’s determination to get ahead of the pack in the carbon-neutrality race sets it up for growth in the coming years. In addition, its renewable energy growth strategy will ensure it exceeds renewable energy state mandates. This will make the company eligible for state and federal incentives.

In the short term, investors can look to a favourable forward P/E ratio (20.21) and forward EPS (4.09). From a medium to long-term perspective, the company is progressing with its $14.2 billion investment in its transmission and distribution network through the Eastern MA Transmission projects, Greenwich Substation projects, Hartford Area Transmission projects, and Seacoast Reliability project. The company has also diversified into gas and water utilities recently but has received a setback. Eversource had to cancel its Northern Pass transmission project because the New Hampshire Supreme Court upheld the State’s Site Evaluation Committee’s 2018 project rejection.

In addition to the aggressive growth strategy, Eversource has raised dividends annually over the past decade, demonstrating its dividend aristocrat status. The current dividend yield is a creditable 2.93%.

Eversource’s current price is $82.67; analysts have set price targets at $102.00 (high), $82.00 (Low), and $91.00 (median). Seven of 22 analysts posted buy recommendations for (ES); however, 22 rated the stock hold.

Ameren Corporation (NYSE: AEE)-Biggest price appreciation

Now is the time to buy Ameren Corporation’s undervalued stocks. No analysts have downgraded this stock’s rating for 2021. BMO Capital maintained its outperform rating for the company, meaning it will appreciate faster than other electric utility sector companies. Its strong forward P/E ratio (20.69) and EPS (4.04) point to the solid 2022 revenue projection of $6.42 billion compared to the $6.15 billion expected for 2021. The impressive numbers have guided the stock price targets accordingly, with the low ($88), average ($92.00), and high ($101.00) estimates all above the current $83.57 price.

A bullish approach to Ameren is wise, based on its long-term strategy of making critical infrastructure investments to modernize its energy grid and promote decarbonization. The board believes that modernization, producing clean energy, and disciplined cost management are the keys to delivering superior value to shareholders.

Ameren Corp’s excellent dividend record is another decisive reason why you need to buy this stock. 2021 marks eight consecutive years of dividend growth. The company seeks to align its dividend payment growth with its EPS growth. The strategy tells us there is more to come from Ameren.

You get almost everything you could hope for in this stock: stability, high market capitalization, and above-average Environmental Social and Governance (ESG) sustainability ratings. In terms of shareholder returns, expect increasing revenues, share price appreciation, and dividends. Ameren Corp is a strong buy.

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Exelon Corporation (NASDAQ: EXC)- Best affordable high market-cap stock

When opportunity knocks, wise investors answer the door. A highly capitalized share like EXC $49.24 is rarely available for around half the price of different stocks in the same sector (NextEra $98.46).

Exelon has had some Environmental, Social, and Governance (ESG) trouble with its Illinois-based subsidiary ComEd. It looks like ComEd will ultimately face a gentle slap on the wrist in the form of fines for bribery of public officials, but the impact hurt shareholders and damaged the company’s reputation.

One man’s loss is another man’s gain; even if you were an Exelon shareholder before the stock price fell and you didn’t sell, you are set for a wild ride back to the top, and we are looking beyond the strong forward EPS (3.7) and forward P/E ratio (15.06). We are even looking beyond the consistent dividend payments that have increased every year since 2013.

The stock’s current price is a bargain because the company has an ESG competitive advantage over other electric utilities. It produces the largest volume of zero-carbon power in the US, thanks to over 60% of its generation capacity derived from nuclear assets. As nuclear safety concerns wane and tougher decarbonization regulations and mandates emerge, Exelon can focus on additional growth. In addition, other electric utilities will need to speed up decommissioning their carbon-based power generation assets. Exelon is even seeking to go a step further by splitting its power generation business from its power utility operations, a move that would bring even better value for shareholders.

The EXC price targets support its bargain designation. Analysts expect $66.00 (high), $41.00 (Low) and $54.03 (Average). Priced At $49.24, now is the time to buy Exelon.

NextEra Energy (NYSE:NEE)-Best Electric Utility Stocks for sustainability

Corporate sustainability refers to; integrating environmental, social, and governance (ESG) factors with financial management when making business decisions. Companies with low sustainability ratings make decisions that will positively impact their bottom line in the short term but harm stakeholders and communities it operates in.

Shareholders, employees, the general public, and the environment may all experience some form of harm in the short to long term. Unsustainable actions expose the company to risks like unfavorable legislation, lawsuits, fines and other penalties, reduced profitability, share-price fall, and most importantly, reputational damage.

Most electric utilities have high environmental risk exposure because 60% of US electricity originates from fossil fuels. Environmentalists also argue that nuclear-based electricity (19.7% of total US electricity production) generates radioactive waste and could be disastrous in the event of an accident.

NextEra is the largest and most capitalized electric utility in the US. It is also the largest producer of both solar and wind electricity in America; the company gets featured regularly on rankings of the top global green companies for these reasons. Environment, Social, and Governance (ESG) Risk Ratings are used to calculate a company’s Total ESG risk score out of 100. Zero is the best possible score, and 100 is the worst. NextEra’s current score is 27 (medium risk)- a good score for the sector, First Energy (NYSE: FE) scores 33.

Here is the NextEra breakdown:

Environment Risk Score 12.9
Social Risk Score 8.2
Governance Risk Score 5.8

The high level of natural gas usage by NextEra’s subsidiary Florida Power and Light (FPL) to generate power negatively impacts the company’s ESG score. NextEra’s expertise in renewable energy will simplify FPL’s decarbonization transition.

Currently priced at $80.70, analysts have set price targets at $103.00 (high), $78.00 (Low) and $89.63 (average). The strong forward PE ratio (28.66) and forward EPS (2.74) confirm short-term growth expectations while all the fundamentals show a bright and sustainable long-term future for the company. Of the 15 brokers reporting for September, five rated the stock strong-buy, eight rated it buy, and two have rated it as hold.

Duke Energy Corp (NYSE:DUK)- Best Electric Utility Stocks for dividends

Duke Energy (NYSE: DUK) is another highly capitalized, stable dividend aristocrat that has consistently increased dividend payments for the last 14 years. This trend will continue with dividend yield currently trending at a healthy 4%. Additionally, all the indicators are promising for short-term capital appreciation. Duke’s 2022 EPS projection of 5.42 is supported by strong P/E and forward P/E ratios explaining the high, average, and low price targets of $118.00, $108.00, and $96.00 each compared to its current price of $98.46. The price predictions are favorable because analysts believe Duke’s earnings will increase.

Morgan Stanley maintained its “sector perform” rating for (DUK), but the stock’s average rating is overweight, so it should outperform its sector average. Analyst’s faith in the company’s performance is well placed based on its corporate actions to increase its renewable energy capacity with ongoing wind and solar energy construction projects in Florida, North Carolina, Oklahoma, and Texas. The company expects to add 280 megawatts of hydro capacity at its South Carolina Bad Creek facility. NextGen’s six nuclear production facilities generated 35% of all its electricity, helping it to manage its carbon emissions.

Duke Energy offers the stability of the electric utility industry. It is a premium, highly capitalized stock. Significant growth capital appreciation and dividend potential make this stock a good to strong-buy to supercharge your income.

The Bottom Line

The stocks above offer different benefits but they have the advantage of the unique characteristics of the electric utility sector. The government’s responsibility to the public forces it to make this essential service available to all, often resulting in preferential terms for utilities that almost guarantee stable operations for the companies. Customers prioritize utility bills above paying car notes and many other expenses, so utilities will tend to remain highly capitalized with steady returns regardless of the state of the economy. As a result, utilities may not provide the astronomical capital appreciation of tech stocks, but total shareholder returns (TSR) including dividends, tend to be high.

Electric utility stocks will benefit from exponential demand increase as governments promote decarbonization to reverse global warming. The electric utilities that seek to aggressively phase fossil fuels out of their electricity generation process and replace them with renewable energy sources position themselves to take advantage of valuable incentives to help with the transition. The sooner electric utilities can switch, the better positioned they will be for growth opportunities, increased profitability, and increasing shareholder value.

TSR on electric utilities can supercharge your income in the short term, but the sweetener is; these stocks are sleeping giants. Their true worth will emerge in the coming years with the pending demise of fossil fuels. So buy now, take the returns and watch the prices go up over time.

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