Buy These 5 Utility Stocks to Combat October Volatility
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October generally remains volatile on Wall Street. This year, volatility has set in U.S. stock markets from the beginning of this month. October’s volatility is expected to persist due to better-than-expected job data for September, expectations of Fed rate cut in a gradual fashion rather than more aggressive way, jump in the yield of the benchmark 10-Year Treasury Note, intensified geopolitical conflict in the Middle East and the upcoming U.S. Presidential election on Nov. 5.
At this stage, it will be fruitful to stay invested with defensive stocks like utility. We recommend five low-beta, dividend-paying utility stocks for the rest of 2024. These are Evergy Inc. EVRG, Xcel Energy Inc. XEL, WEC Energy Group Inc. WEC, American Water Works Co. Inc. AWK and Atmos Energy Corp. ATO.
Utilities Sector Stocks Surprisingly Flourish in 2024
The utilities sector is generally defensive in nature. U.S. stock markets witnessed an impressive bull run in 2023, but the utility sector suffered a blow. Wall Street’s bull run continues in 2024. Surprisingly, this sector has become a major part of this year’s rally so far. Year to date, of the 11 broad sectors of the S&P 500 Index — the utilities sector has turned out as the best performer rallying 25.4%.
The Fed reduced the benchmark lending rate aggressively 50 basis-points in September and signaled more cuts this year. Utility operations are capital-intensive, as consistent investments are required to upgrade, maintain and replace older wires, electric poles and power stations.
Hence, apart from internal fund sources, utilities depend on the credit market for funds to carry on upgrades. Therefore, a reduction in the benchmark lending rate will give a boost to this sector.
Utilities are mature and fundamentally strong as demand for such services is generally immune to the changes in the economic cycle. Such companies provide basic services like electricity, gas, water and telecommunications, which will always be in demand.
Consequently, adding stocks from the utility basket usually lends more stability to a portfolio in an uncertain market condition. Moreover, the sector is known for the stability and visibility of its earnings and cash flows. Stable earnings enable utilities to pay out consistent dividends that make them more attractive to income-oriented investors.
5 Utility Stocks to Buy Amid a Volatile October
These five stocks have strong revenue and earnings growth potential for the rest of 2024. These five stocks are low-beta (beta >0 <1) and dividend-paying. Each of our picks currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The chart below shows the price performance of our five picks in the past three months.
Image Source: Zacks Investment Research
Evergy Inc.
Evergy continues to benefit from its expansion of operations in the transmission market through collaborations, strategic acquisitions and partnerships. Through planned investments and the Integrated Resource Plan, EVRG aims to add more renewable assets and become carbon neutral by 2045. EVRG improves shareholders’ value through dividend payments and has enough liquidity to meet debt obligations.
Evergy has an expected revenue and earnings growth rate of 4.2% and 8.5%, respectively, for the current year. EVRG has a current dividend yield of 4.26% and a beta of 0.62.
Xcel Energy Inc.
Xcel Energy is poised to benefit from its solid capital investment plan for infrastructure- strengthening and clean power generation. XEL is reducing coal usage and targets lowering emissions at least 80% by 2030 and achieve carbon neutrality by 2050. XEL’s expanding customer base and rising demand act as tailwinds.
Xcel Energy has an expected revenue and earnings growth rate of 2.3% and 6%, respectively, for the current year. XEL has a current dividend yield of 3.44% and a beta of 0.39.
WEC Energy Group Inc.
WEC Energy continues to benefit from its organic and inorganic assets’ contributions. WEC’s strategic investments should strengthen its infrastructure. LNG facilities and renewable assets will assist WEC in achieving its net carbon-neutral target by 2050. Improving demand from large and small commercial and industrial and residential customers is boosting its performance. WEC has sufficient liquidity to meet its near-term debt obligations.
WEC Energy has an expected revenue and earnings growth rate of 1.7% and 5.2%, respectively, for the current year. WEC has a current dividend yield of 3.50% and a beta of 0.44.
American Water Works Co. Inc.
American Water Works has been gaining from contributions from acquired assets and military contracts. Investments in infrastructure will assist AWK to efficiently serve its customers.
New water and wastewater rate hikes are also boosting AWK’s performance. AWK continues to expand its operations through organic and inorganic initiatives. AWK has ample liquidity to meet its debt obligations.
American Water Works has an expected revenue and earnings growth rate of 4.3% and 7.6%, respectively, for the current year. AWK has a current dividend yield of 2.15% and a beta of 0.69.
Atmos Energy Corp.
Atmos Energy continues to benefit from rising demand for natural gas, courtesy of an expanding customer base. ATO’s long-term investment plan should further increase the reliability of its natural gas pipelines.
ATO gains from industrial customer additions and constructive rate outcomes. Returns within a year of capital investment should further boost ATO’s performance. ATO has enough liquidity to meet its near-term debt obligations.
Atmos Energy has an expected revenue and earnings growth rate of 11.9% and 5.2%, respectively, for the current year (ending September 2025). ATO has a current dividend yield of 2.30% and a beta of 0.68.
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Xcel Energy Inc. (XEL) : Free Stock Analysis Report
WEC Energy Group, Inc. (WEC) : Free Stock Analysis Report
Atmos Energy Corporation (ATO) : Free Stock Analysis Report
American Water Works Company, Inc. (AWK) : Free Stock Analysis Report
Evergy Inc. (EVRG) : Free Stock Analysis Report