A Comprehensive Guide to Companies in the Public Utilities Field

A Comprehensive Guide to Companies in the Public Utilities Field



Public utilities play a crucial role in supplying electricity, natural gas, and water to homes and businesses across the United States. These highly regulated companies are known for their stability and are considered attractive investments in the stock market. Investing in utilities stocks typically offers slow but steady appreciation and reliable cash flow through dividends. To help you navigate the utilities sector, this guide profiles the top 10 largest utilities stocks based on market capitalization.

Best Utilities Stocks of 2023

1. NextEra Energy, Inc. (NEE)

  • Market Cap: $149 billion
  • Dividend Yield: 2.43%
  • 10-Year Avg. Annualized Return: 17.4%

2. The Southern Company (SO)

  • Market Cap: $76 billion
  • Dividend Yield: 3.93%
  • 10-Year Avg. Annualized Return: 9.5%

3. Duke Energy Corporation (DUK)

  • Market Cap: $69 billion
  • Dividend Yield: 4.46%
  • 10-Year Avg. Annualized Return: 7.4%

4. National Grid PLC (NGG)

  • Market Cap: $49 billion
  • Dividend Yield: 4.66%
  • 10-Year Avg. Annualized Return: 6.1%

5. Sempra (SRE)

  • Market Cap: $46 billion
  • Dividend Yield: 3.19%
  • 10-Year Avg. Annualized Return: 9.4%

6. American Electric Power Company, Inc. (AEP)

  • Market Cap: $43 billion
  • Dividend Yield: 3.89%
  • 10-Year Avg. Annualized Return: 10.0%

7. Dominion Energy, Inc. (D)

  • Market Cap: $43 billion
  • Dividend Yield: 5.29%
  • 10-Year Avg. Annualized Return: 3.1%

8. Exelon Corporation (EXC)

  • Market Cap: $40 billion
  • Dividend Yield: 3.49%
  • 10-Year Avg. Annualized Return: 11.1%

9. Xcel Energy Inc. (XEL)

  • Market Cap: $35 billion
  • Dividend Yield: 11.6%
  • 10-Year Avg. Annualized Return: 11.8%

10. Public Service Enterprise Group Incorporated (PEG)

  • Market Cap: $31 billion
  • Dividend Yield: 3.57%
  • 10-Year Avg. Annualized Return: 10.4%

All data is sourced from StockRover, current as of June 1, 2023.

Understanding the Types of Utilities Stocks

Within the utilities sector, stocks can be categorized into various industries and sub-sectors. The following are some of the sub-sectors commonly found within the utilities sector:

  1. Energy producers: These companies generate electricity using renewable or nonrenewable sources such as wind, solar, nuclear, and hydroelectric power.
  2. Energy distributors: Distributors facilitate the buying, selling, and transmission of electricity through the national grid, ensuring a reliable supply to homes and businesses.
  3. Energy service operators: Energy service operators (ESOs) are utilities that directly provide power to consumers’ homes and businesses through individual meters. They operate under strict regulation.
  4. Natural gas suppliers: Similar to electricity transmitters, natural gas suppliers transport natural gas across the country or directly to homes and businesses.
  5. Water and sewer utilities: While some water and sewer utilities are publicly owned, others are managed by private, for-profit companies.

It’s worth noting that many major utilities stocks are holding companies that own multiple subsidiary operations across different sub-segments. For example, Duke Energy not only serves as an energy service operator but also owns energy production units.

Advantages of Investing in Utilities Stocks

Investing in utilities stocks offers several advantages, including:

  1. Stable stock prices: Utilities stocks are known for their steady prices, making them a relatively safe investment compared to riskier assets.
  2. Resilience in economic volatility: The demand for utilities remains stable regardless of economic conditions, reducing the likelihood of significant losses during downturns.
  3. Regular dividends: Many utilities stocks have a history of paying consistent dividends, providing investors with reliable income streams.
  4. Stable demand: Due to their large-scale operations, utility companies experience predictable demand from quarter to quarter.

Risks of Investing in Utilities Stocks

While utilities stocks are generally considered safer investments, they still come with certain risks, including:

  1. Limited growth potential: Utilities stocks typically offer slower stock price appreciation compared to sectors like technology. These companies are slow to respond to market changes and face strict regulatory limitations.
  2. Increasing regulatory costs: As regulations evolve, utility companies face rising compliance costs. The shift towards renewable and zero-emissions energy sources adds further financial burden.
  3. Potential losses: Although considered relatively safe, utilities stocks can still experience losses due to poor business decisions or unforeseen circumstances.

How to Buy Utilities Stocks

Investors can purchase utilities stocks through a securities brokerage account or a qualified retirement account such as an individual retirement account (IRA). Some investors may also have the opportunity to buy shares through employer-sponsored 401(k) plans.

When trading individual stocks, it’s essential to remember the inherent risks involved. Thoroughly researching companies and their financial circumstances is crucial before making any investment decisions.

Alternatively, financial advisors often recommend diversifying investments through tools like mutual funds, exchange-traded funds (ETFs), or index funds. These options provide broader exposure to the utilities sector and help mitigate risk.

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