Defensive utility stocks for income
It's hard to know what to expect in 2021 as the disruptions and uncertainties of the pandemic continue to run amok and fears of an economic downturn intensify. Consider that the U.K. just suffered its worst economic contraction since 1709, with a massive 9.9% slump in GDP last year. It's hard to imagine anything could be truly safe in an environment with this much risk and uncertainty. However, utility stocks may provide one of the least volatile options out there for investors. After all, electricity is a necessity and most utilities operate as legal regional monopolies. If you're worried about the state of things in 2021, then consider these stocks that yield 4% or more as a decent hedge in an uncertain environment.
Atlantica Sustainable Infrastructure (ticker: AY)
When investors think of utility stocks to buy for income, they probably think of massive domestic companies operating fossil fuel-fired power plants. Well AY breaks the mold, as this stock is based in the U.K. but operates renewable energy infrastructure operations globally. Spanning markets from the U.S. and South America to Spain and South Africa, Atlantica owns or has interests in 25 total power facilities and nearly 1,200 miles of electric transmission lines. It also owns 10.5 million cubic feet per day of water desalination assets on top of that. Though not your traditional utility stock, AY does offer tremendous yield -- and unlike normal stocks in the sector, it has run up 30% in the last year or so, thanks to its high-growth focus on sustainable power.
Current yield: 4.3%
Consolidated Edison (ED)
If you're looking for utility stocks with a rich history of dividends, then look no further than Consolidated Edison, which has a payment history dating back to the early days of America's public markets. Getting its start as the New York Gas Light Company in 1823, this utility originally provided natural gas to buildings nearly 100 years before the typical American household had electricity. What's more, in January 2021, ConEd notched its 47th consecutive annual increase in dividends for shareholders, the longest period of consecutive annual dividend increases of any utility in the S&P 500.
Current yield: 4.4%
Duke Energy Corp. (DUK)
In contrast, Duke is exactly what you may be looking for if you prefer a traditional utility stock. It's a $66 billion behemoth that provides electric power to 7.2 million customers across a large portion of the U.S., from the Carolinas and Florida to Kentucky and Ohio. In addition to its unrivaled scale, DUK stock has paid dividends for almost a century and just notched its 15th consecutive annual dividend increase last summer. That hints at a long-term commitment of returning cash to its shareholders that could fuel even bigger payouts down the road.
Current yield: 4.4%
Edison International (EIX)
Not to be confused with ConEd, as both share the name of an iconic inventor who worked on the applications of electricity, Edison International generates electricity through hydroelectric, diesel, natural gas, nuclear and photovoltaic sources to serve 5 million customers connected by nearly 100,000 total miles of overhead and underground cable. This utility may imply an international footprint via its name, but its Southern California Edison arm is its main appeal for dividend investors as it is both a reliable source of revenue and continues to innovate via sustainable energy initiatives and projects like electric vehicle charging stations in the region.
Current yield: 4.6%
Enel Americas SA (ENIA)
Enel operates as an electricity utility company in Argentina, Brazil, Colombia and Peru. The company collectively boasts nearly 25 million customers across those nations, putting it on par with some of the larger U.S. electric utilities if you're simply judging by connections. Though there's a bit more risk here, ENIA is not a fly-by-night stock, as it was founded in 1889 and remains the dominant electricity provider for much of South America. Dividends are typically paid twice annually in varying size, so income investors should expect "lumpy" payments. The good news, however, is that distributions haven't dropped for 2021, meaning there's time to get in before these generous dividends.
Current yield: 6.3%
Entergy Corp. (ETR)
New Orleans-based Entergy is a $19 billion utility that uses gas, oil, coal, nuclear and solar to generate power for roughly 3 million customers in the South, from Arkansas to Texas to Louisiana. ETR's portfolio is a bit "dirtier" than some other utilities, so there's a transition risk as global regulators become increasingly focused on carbon emissions from fuel sources like coal. That means ETR is allocating more of its cash toward capital expenditures and skimping a bit on dividends when compared with its peers. However, long-term investors should have confidence that these investments will keep Entergy relevant for many years to come.
Current yield: 4%
National Grid (NGG)
The $41 billion utility stock National Grid is an electricity provider that operates on both sides of the Atlantic Ocean. The firm provides electricity and gas service in the U.K., where it is headquartered. In the Northeastern U.S., it provides electricity transmission across upstate New York, Massachusetts and Rhode Island. This diversified operation allows the firm to enjoy the reliable revenue generated by utility operations in a developed market, but also allows it to have an international footprint that makes it less exposed to local economic and regulatory trends.
Current yield: 5.2%
Southern Co. (SO)
At $63 billion, Southern Co. represents what many investors think about when they conjure up the idea of a utility stock. The Atlanta-based company operates electricity generation and distribution assets, including nuclear power plants, renewable facilities such as solar, wind and hydroelectric generation centers, and traditional fossil fuel plants. It also operates a natural gas segment that offers wholesale gas services. As one of the biggest names in the U.S. utility sector, those searching for scale and stability should give SO a look.
Current yield: 4.3%
PPL Corp. (PPL)
Headquartered in Allentown, Pennsylvania, PPL serves more than 10 million customers mainly in Pennsylvania and Kentucky. Like many stocks, PPL took a pretty significant hit at the beginning of 2020 due to the disruptions caused by the pandemic. However, that really juiced this utility stock's dividend yield, and since those lows, the stock has rebounded more than 50% in less than a year. Revenue and profits aren't growing at a breakneck pace, but they are slowly expanding -- meaning PPL may continue its steady recovery and keep paying reliable dividends along the way.
Current yield: 6%
Nine utility stocks to buy for income:
-- Atlantica Sustainable Infrastructure (AY)
-- Consolidated Edison (ED)
-- Duke Energy Corp. (DUK)
-- Edison International (EIX)
-- Enel Americas SA (ENIA)
-- Entergy Corp. (ETR)
-- National Grid (NGG)
-- Southern Co. (SO)
-- PPL Corp. (PPL)