7 Rock-Solid Utility Stocks to Power Your Portfolio for the Long Haul

Stocks to buy

Facing some doubts in February, investors should turn to utility stocks. Why? It’s very simple. With this sector, you’re dealing with permanent relevance.

In the connected world we live in, going off grid won’t get you very far. Everything we do depends on power and other critical resources. Further, the top utility stocks are effectively entrenched in their key markets. Protected by significant barriers to entry – including steep regulations – legacy utility companies benefit from natural monopolies.

Second, as a direct result of this permanent relevance, utility stocks can be among the most reliable investments. Generally, you’re not going to get rich off the exposure. However, with many companies in the field offering passive income, stakeholders are able to sleep easier at night.

Finally, companies in this space enjoy some protection from inflation. Basically, they’re able to pass on cost increases to their customers. It’s cynical but it works. And with that, below are utility stocks to warm up your holdings this winter.

Vistra (VST)

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An integrated retail electricity and power generation company, Vistra (NYSE:VST) is the largest competitive power generator in the U.S., per its public profile. Featuring a diverse portfolio of natural gas, nuclear, and solar power, Vistra can serve its customers through multiple channels. In addition, the company features battery energy storage facilities.

Regarding the financial performance, Vistra is a bit of a mixed bag. For example, it doesn’t have the greatest stability in the balance sheet, as evidenced by its lowly Altman Z-Score. Also, its three-year revenue growth rate of 11.2% is slightly worse than the average of its main independent power production industry.

However, the company offers a return on equity (ROE) of nearly 27%, beating out almost 88% of its peers. Also, VST trades at a forward earnings multiple of 11.48X, below the sector median of 15.11X.

While it’s not the greatest dividend, Vistra offers a forward yield of 1.87%. And the payout ratio sits at 17.7%, indicating high confidence regarding yield sustainability. Therefore, it’s a top idea for utility stocks to buy.

TransAlta (TAC)

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An electricity power generator and wholesale marketing company, TransAlta (NYSE:TAC) operates 76 power plants in Canada, the U.S. and Australia. Its portfolio consists of wind turbines, hydroelectric facilities, natural gas and coal power generation plants. To be fair, TAC hasn’t enjoyed the greatest market performance among utility stocks. However, an argument can be made that the selloff has gone on too far.

Financially, TransAlta is again a mixed bag although it enjoys many positives. Yes, the balance sheet could use some work. Also, its three-year revenue growth rate of 9.8% is below average. However, the company enjoys a stellar ROE of 41.62%. Also, its return on invested capital (ROIC) clocks in at 10.5%.

Enticingly, TAC stock trades at only 4.36X trailing-year earnings. Also, a price-to-free-cash-flow (FCF) ratio of only 5.9X suggests that TransAlta could be a discount for the contrarian investor. Presently, the utility offers a forward yield of 2.55%.

Analysts also view TAC as a unanimous strong buy with an $11.64 price target. With such intense support, it’s one of the utility stocks to buy.

NRG Energy (NRG)

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Based in Houston, Texas, NRG Energy (NYSE:NRG) is involved in energy generation and retail electricity. Its portfolio includes natural gas, coal, oil, nuclear, wind, and utility-scale power generation. As well, it offers distributed solar generation. Per its public profile, NRG serves over seven million retail customers in 24 states.

Unlike some other utility stocks, NRG has been flying over the past one-year period. Some of that enthusiasm may center on NRG benefitting from millennial migration trends. States like Ohio, Pennsylvania and Texas offer lower costs of living than many other regions.

Unsurprisingly, NRG also prints a robust three-year revenue growth rate of 53.2%, beating out nearly 87% of its peers. Also, its EBITDA growth rate during the same period stands at 24.5%. Even better, NRG stock trades at only 7.7X forward earnings, below the sector median 15.11X.

Regarding passive income, NRG carries a forward yield of 3.14%. As well, its payout ratio sits at a very sustainable 22.84%. Thus, it’s a worthy idea for reliable utility stocks to buy.

NextEra Energy (NEE)

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One of the top utility stocks firmly entrenched in the renewables space, NextEra Energy (NYSE:NEE) features about 72 gigawatts (GW) of operating capacity, per its website. In addition, the company has earmarked about $85 billion to $95 billion in planned investments in U.S. infrastructure through 2025. As an intriguing food for thought, it claims a 98% reduction in its dependency on foreign oil since 2001.

To be fair, NEE stock hasn’t exactly been a great investment over the past 52 weeks. As The Wall Street Journal pointed out last year, investors pummeled NextEra with red ink due to lingering concerns about higher interest rates impacting the renewable energy space. Those questions aren’t completely addressed. However, as the economy slowly recovers, NEE could be an enticing long-term opportunity.

No, it’s not a great discount but a trailing-year earnings multiple of 15.8X is relatively low given its recent history. Also, over the past three years, NextEra posted a sales expansion rate of 14.8%. Analysts view shares as a consensus moderate buy with a $69.60 price target. Lastly, the company offers a forward yield of 3.61%.

Alliant Energy (LNT)

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A public utility holding company, Alliant Energy (NASDAQ:LNT) provides power services in Iowa and Wisconsin. Fundamentally, Alliant may offer a geographic advantage. According to one report, the cost of living in Iowa comes out to $29,000 a year. That’s about 28% lower than the national average. And while Wisconsin is more expensive, it too is about 2% lower than the national average.

With so many people – especially young folks – being priced out of the real estate market, these and similar states offer attractive landing spots. Therefore, Alliant is placed right where the money will be. True, LNT hasn’t enjoyed the best start to the new year. And it’s down on a 52-week basis. But with a little patience, investors could be looking at a solid deal.

In full disclosure, Alliant’s financial print isn’t exactly sterling. However, where it does shine is in its strong margins and consistent annual profitability. As a result, it’s able to deliver a forward dividend yield of 3.97%. Also, it’s been consistently boosting its payout over the past 21 years. That makes it one of the top utility stocks to buy.

American Electric Power (AEP)

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Headquartered in Columbus, Ohio, American Electric Power (NASDAQ:AEP) represents a major investor-owned electric utility in the U.S. Per its public profile, the company delivers electricity to more than five million customers in 11 states. Further, AEP ranks among the nation’s largest generators of electricity, owning nearly 38,000 megawatts of generating capacity.

As with other utility stocks, AEP benefits from a geographic advantage. Serving states such as Texas, Indiana, Michigan and Ohio, American Electric should benefit from the mobility of money. In other words, as people become priced out of their coastal metropolitan homes, they may start looking inward. Therefore, booming population trends could help fuel long-term growth.

In fairness, the balance sheet for American Electric is shaky. Moreover, its three-year revenue growth rate of 6.8% is somewhat pedestrian. However, it’s consistently profitable which shouldn’t be overlooked. And that fact helps support the forward yield of 4.33%. Also, the payout ratio is sustainable at 59%.

Analysts view shares as a moderate buy with an $86.86 price target. Overall, it has potential to be one of the top utility stocks.

Duke Energy (DUK)

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Last but definitely not least we have Duke Energy (NYSE:DUK). An electric power and natural gas holding company, Duke may offer the best geographic advantage on this list of utility stocks. With a strong presence in the Carolinas, Duke should benefit from millennial migration trends. Consistently, North Carolina in particular sees significant interest among young people looking to escape ridiculous costs of living.

And because these are young folks, Duke enjoys a long-term tailwind. With many, many years of working and consuming resources left, the company should see improved financials. Yes, its 6% three-year revenue growth rate isn’t anything to write home about. Indeed, it’s worse than 60% of the competition. However, over time, this metric will likely see significant improvements.

In the meantime, investors can bank on the company’s consistent profitability. In turn, the black ink helps support Duke’s forward yield of 4.46%, which is above the utility sector’s average yield of 3.75%. Finally, DUK also commands 19 years of consecutive dividend increases, making it one of the most dependable utility stocks to buy.

On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare. Tweet him at @EnomotoMedia.

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