Utility stocks have long been a safe haven for income-oriented investors, offering steady dividends and relative stability. However, as interest rates rise, the landscape is changing. Rising interest rates have made traditional income-generating alternatives like Certificates of Deposit (CDs) more competitive, resulting in a decline in utility stock prices. Nevertheless, this presents an opportunity for investors who are willing to embrace some level of risk for the potential benefit of dividend growth. In this article, we’ll explore three utility stocks that stand out as attractive investment options for November: Black Hills, NextEra Energy, and Brookfield Renewable.
1. Black Hills (NYSE: BKH): The Reliable Dividend King
- Black Hills operates natural gas and electric utilities across eight states, serving approximately 1.3 million customers.
- While not the largest utility by market capitalization (approximately $3.2 billion), it boasts an impressive track record as a “Dividend King” with 53 consecutive years of annual dividend increases.
- The company is currently facing headwinds and is focusing on debt reduction to manage interest expenses, resulting in a temporary slowdown in capital spending.
- Management maintains a positive outlook for the long term, targeting annual earnings growth in the 4% to 6% range.
- With a current yield of 5.2%, Black Hills offers a compelling income opportunity for investors.
2. NextEra Energy (NYSE: NEE): The Dual-Purpose Powerhouse
- NextEra Energy is a unique combination of a regulated utility, Florida Power & Light, and a rapidly growing renewable energy business.
- Historically, the company has excelled in delivering both growth and income, with over 25 years of consecutive annual dividend increases.
- Recent challenges, including higher interest rates and headwinds in the renewable power sector, have impacted the stock’s performance, pushing the dividend yield to approximately 3.2%.
- Despite these challenges, management maintains its goal of achieving 6% to 8% annualized earnings growth, making NextEra an enticing option for dividend-focused investors.
3. Brookfield Renewable (NYSE: BEP/BEPC): Powering the Clean Energy Future
- Brookfield Renewable offers two forms of stock, a partnership and a corporation, representing the same entity, providing flexibility for investors.
- The company is committed to a clean energy future, with a diverse portfolio of hydroelectric, solar, wind, and energy storage assets worldwide.
- Recent concerns related to rising construction costs and higher interest rates have led to a significant decline in stock price (approximately 35%), creating an opportunity.
- Brookfield Renewable boasts a substantial portfolio that currently generates around 32 gigawatts of power, with future projects in the pipeline set to produce approximately 134 gigawatts.
- With dividend yields of 6.2% for the partnership and 5.7% for the corporation, the company’s history of increasing dividends annually for nine years at a compound annual rate of about 6% aligns with management’s long-term growth targets.
Conclusion: In a shifting landscape with rising interest rates, utility stocks remain attractive for income-oriented investors, offering opportunities for dividend growth. Black Hills, NextEra Energy, and Brookfield Renewable each bring their unique strengths to the table, making them promising investment choices for November and beyond. Investors looking for income, dividend growth, and potential long-term returns should consider these utility stocks in their portfolios.
