What are the top utility shares to watch?
Utility companies supply and maintain our daily energy and water needs. Here, we explain why people buy utility stocks, highlight some popular opportunities, and show you how to identify the highest yield utility stocks.
Why buy utility stocks?
Utility stocks are some of the most popular buy and hold stocks on the market. This is because utility stocks often offer high dividends, and they tend to outperform other sectors in times of economic uncertainty.
Utility companies supply the daily energy and water needs of large proportion of the world’s population. Different utility companies provide electricity, gas and water – as well as being responsible for the maintenance of the delivery systems and production hubs. Because of this, utility stocks will always be in demand due to the societal need for energy and water.
There are a number of different options available for producing and supplying this energy including renewables, nuclear power plants, hydro-electric and tidal power, as well as fossil fuels. But in the last decade or so, many utility companies have made an effort to shift their means of production away from fossil fuels to cleaner alternatives, after increased consumer awareness about the need to transition to cleaner forms of energy.
Different utility companies perform different functions, so it’s important to establish some definitions for the different types of utility company:
- Energy generating companies: utility companies that produce or supply energy and water to customers
- Energy network operating companies: utility companies that operate energy grids and are responsible for matching the supply of energy or water with the current demand in a given region
- Network maintenance companies: utility companies that are responsible for maintaining energy networks, wastewater networks or sewage works. These companies can also include installation as part of their services
Often, the three different definitions of a utility company can apply to one single entity, but other times a company might have chosen to specialise in one of the above – or created subsidiaries to diversify their offering.
How to trade or invest in utility stocks
Follow the steps below to place a trade on utility stocks:
- Research the company you’d like to trade
- Choose whether to trade or invest
- Create a trading account or share dealing account
- Take steps to manage your risk
- Open, monitor and close your position
Trading and investing are two different ways to take a position on a company’s stock. Trading means that you’re speculating on the price of the stock rising or falling with financial derivatives like spread bets and CFDs. With these products, you won’t own the shares directly, so you won’t receive dividends if the company pays them
Investing on the other hand is a way to take direct ownership of the company’s stock. If you own stock, you’ll receive dividends if the company pays them, as well as voting rights if the company grants them. When investing, your maximum risk is capped at the cost of opening the position, and you’ll profit from any increases in the stock’s price. You can invest in utility shares through a share dealing service.
Top 10 utility stocks to watch
The below list of utility stocks has been ranked in no particular order, but each company has significant holdings and operations in the utility sector:
- Dominion Energy
- PPL Corporation
- Électricité de France S.A. (EDF)
- United Utilities
- National Grid
- British Gas
1. Dominion Energy
Dominion is one of the largest utility companies in the US, operating in 18 states across the country. It is headquartered in Richmond, Virginia, and it has a number of subsidiaries including Gas Infrastructure Group, Power Generation Group and Power Delivery Group.
Dominion has a large focus on water, solar, wind, natural gas and biomass methods for generating electricity to meet the utility demands of its 7.5 million customers. The company also relies on coal and oil to generate power for 40% of its customers.
Dominion Energy is listed on the New York Stock Exchange under the D ticker. And, the company is a component of the Dow Jones Utility Average (DJUA) and S&P 500 indexes.
FirstEnergy is an American utility company based in Ohio. The company controls one of the largest investor-owned electric systems in the US, with more than 24,500 miles of transmission lines across the country and a total generating capacity of 3780 megawatts.
FirstEnergy is made up of ten different regulated distribution companies, which together serve over six million customers in the American Midwest and Mid-Atlantic regions. These companies include Ohio Edison, The Illuminating Company, Penn Power, Mon Power and Jersey Central Power and Light.
FirstEnergy is listed on the New York Stock Exchange under the FE ticker. Plus, it's a component of the DJUA and S&P 500.
3. PPL Corporation
PPL Corporation provides energy and utility services to over ten million customers in both the US and the UK. As with other utility companies on this list, PPL is committed to an increased use of renewable energy generation systems as part of their supply grid. To this end, the company has committed to reducing the company’s carbon dioxide emissions by 70% from 2010 to 2050.
PPL has approximately 218,000 miles of electric lines across the US and the UK, as well as a total energy generation capacity of 8000 megawatts in the US. PPL is listed on the New York Stock Exchange under the PPL ticker and the company is an S&P 500 component.
4. NextEra Energy
NextEra is the largest electricity utility company in the world, and it is based in the US. NextEra generates more wind and solar energy than any other utility company, and in the last decade or so, the company has made a concerted shift toward renewable energy generation.
NextEra has a number of subsidiaries including Florida Power and Light, NextEra Energy Partners, NextEra Energy Resources and NextEra Energy Services. The largest of the subsidiaries, Florida Power and Light, supplies electricity to around 10 million people in the US and is the third largest electric utility company in the US in its own right.
NextEra is listed on the New York Stock Exchange under the NEE ticker. The company is a component of the DJUA, the S&P 100 and the S&P 500 indices.
5. Électricité de France S.A. (EDF)
Électricité de France is the parent company of EDF Energy, the largest producer of low-carbon energy in the UK. It is one of the ‘Big Six’ utility companies in the UK energy sector, with the others being British Gas, SSE, E.ON, Scottish Power and Npower.
EDF Energy works alongside other subsidiaries under the EDF umbrella to meet the energy needs of its customers. This includes working with EDF Renewables Group, which owns 36 wind farms and one of the largest operational battery storage units in Europe, to ensure that the energy needs of EDF Energy’s customers are met.
EDF is listed on the Euronext Stock Exchange under the EDF ticker and it’s a component of the CAC Next 20. The CAC Next 20 includes the 20 largest companies after those that are included in the CAC 40.
SSE is an energy and utility company headquartered in Perth, Scotland. SSE formerly stood for Scottish and Southern Energy, although following a rebranding in 2010 the company became known simply as SSE.
SSE is one of the Big Six utility companies in the UK, and it is responsible for generating and supplying electricity and natural gas utilities to large areas of the UK and the Republic of Ireland. The company manages the largest energy distribution network in the UK, and it serves more than 150 locations across the country.
SSE trades on the London Stock Exchange under the SSE ticker, and it is also a component of the FTSE 100.
7. United Utilities
United Utilities is the largest publicly listed water company in the UK, supplying drinking water and wastewater services to over 3 million homes and 200,000 businesses in the North West.
Much of the company’s water supply comes from man-made lakes or reservoirs, which are mostly located in the British lake and peak districts. Aside from supply water to its customers, United Utilities also looks after the maintenance of its supply lines and any leaks in their network.
United Utilities is listed on the London Stock Exchange under the UU ticker, and it is a component of the FTSE 100.
8. National Grid
National Grid is the electricity system operator for the UK, meaning it is responsible for ensuring that homes and businesses in the UK have access to but much power they need, whenever they need it. In this capacity, National Grid is also responsible for buying or selling energy depending on current demand levels in the UK.
National Grid also has operations in the north-eastern US, meeting the electricity and gas utility needs of over 20 million customers in Massachusetts, New York and Rhode Island.
National Grid trades under the NG ticker, with a primary listing on the London Stock Exchange and a secondary listing on the New York Stock Exchange (NYSE). The company is also a component of the FTSE 100.
9. British Gas
British Gas is owned by Centrica, so you'll need to trade Centrica stock to get exposure to British Gas and its operations. Centrica itself is the largest supplier of natural gas utilities to domestic UK customers, and it is also one of the UK’s largest electricity suppliers.
British Gas was privatised in 1986 following the approval of the Gas Act. Since being acquired by Centrica in 1997, British Gas has continued to provide utility services across the UK, serving around 12 million homes all over the country. This makes British Gas the UK’s biggest energy supplier and one of the Big Six utility companies in the country.
Centrica is listed under the CNA ticker on the London Stock Exchange and it’s a component of the FTSE 250.
E.ON supplies energy to over 4.3 million customers in the UK, which makes it one of the UK’s leading utility companies. As with other utility companies on this list, E.ON is making an effort to move towards green energy solutions, including shifting to more sustainable forms of energy generation such as wind farms, solar power and biomass.
E.ON’s renewable project is so well-established that in 2019, the company moved all of its British customers onto renewable forms of electricity. This made E.ON the first of the UK’s Big Six utility companies to make this transition.
E.ON is headquartered in Essen, Germany – and it trades under the EONG ticker on the Frankfurt Stock Exchange.
How to identify the best high dividend yield utility stocks
Some companies will pay dividends to investors, which can help to boost the long-term profitability of an investment position. Higher dividend yields are favoured by investors as they can imply greater returns on an initial investment – depending on the size of the position. Utility companies will often have attractive dividend yields.
To calculate the dividend yield, you would divide the annual dividend by the share price.
Companies can often change their dividends depending on their financial performance. A number of factors can influence this, including the current economic outlook and how well a particular sector is doing. But, utility companies tend to perform well when other companies might feel greater pressure in times of economic uncertainty.
Utility stocks: what you need to know before investing
The most important thing to know before you invest in utility shares is that they tend to perform better than other stocks in times of economic uncertainty. As a result, many investors will have utility shares in their portfolios – either as a hedge against downward movements in their other positions, or as an outright long term buy and hold investment.
Utility shares summed up
- Utility shares are some of the most popular shares that investors use as part of a buy and hold strategy
- They often pay high dividends, and they are usually in demand due to the societal need for electricity, energy and water
- Different utility stocks provide different services, including supply electricity and water to their customers and maintaining their delivery networks
- Utility stocks tend to perform well during times of economic uncertainty, when stocks from other sectors might be expected to underperform or decline in value
- Aside from investing in utility stocks outright, you can also use financial derivatives to speculate on their price rising or falling during times of economic slowdown or recovery
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