Utilities stocks are often a good investment and in many cases can power through economic downturns. That makes them worth considering at the moment as investor fears over a potential recession remain.
So, what’s so special about utilities stocks? There are many factors but the main one is the relative inelasticity of demand for the services utilities companies provide. Demand for electricity, gas, and water is relatively steady, leading to reliable earnings in the sector.
Utilities stocks tend to pay strong dividends. Firms in the sector tend to provide higher yield dividends with longer histories of payment than in other sectors. That makes utilities especially attractive to income-oriented investors.
Those factors, and more, make utilities stocks a stalwart component of defensive investing. Utilities firms provide essential services to consumers for which demand fluctuates relatively little. It is that defensive positioning that makes them a strong choice overall, especially as recession fears increase.
Clearway Energy (CWEN)
Clearway Energy (NYSE:CWEN) is an independent developer of clean energy across the United States. The company owns a portfolio of renewable energy assets spanning wind, solar, and storage.
One of the most compelling reasons to invest in Clearway Energy, and to believe it can power through downturns, is its dividend. That dividend currently yields 6.3%. Such a high-yield dividend provides a strong buffer against market downturns and effectively hedges against some loss.
So, Clearway Energy is an attractive stock for utilities investors due to the income it produces. Clearway Energy is attractive for another reason. It is part of the renewable energy generation sector. Artificial intelligence is increasing the overall demand for renewable energy. The large tech companies that run data centers that consume the majority of AI chips have caused a surge in electricity demand. Those same companies have vowed to reduce their carbon footprint which in turn increases demand for renewable energy. CWEN shares are well positioned as a result.
NextEra Energy (NEE)
NextEra Energy (NYSE:NEE) straddles the line between traditional utilities stock benefits and future growth opportunities within the sector. That positions the company uniquely among other utilities firms and makes it attractive to investors.
Furthermore, NEE simultaneously operates the world’s largest public utility in Florida Power & Light and is the world’s largest producer of wind and solar energy. The company also operates natural gas and nuclear energy plants making it a very diverse firm overall.
Now, the company is currently considering restarting its Iowa nuclear power plant as demand for clean energy continues to rise. It’s a clear sign that NextEra Energy is cognizant of the massive opportunity in renewable energy demand due to AI.
In fact, The firm’s CEO predicts that renewable energy demand will triple by 2030. There’s a lot to like about NextEra Energy overall and plenty of reason to believe that it will continue to perform strongly.
The Southern Company (SO)
The Southern Company (NYSE:SO) is perhaps the safest of any of the utilities stocks listed in this article. It is a traditional utilities firm operating in the regulated electricity sector. The company effectively has a monopoly position over the booming Atlanta market in which it is headquartered.
The area is one of the fastest-growing metropolitan regions in the United States. That bodes well for The Southern Company which should benefit from an increasing customer base.
Moreover, SO is an excellent income stock overall. It provides a dividend yield of 3.5% currently. It’s an incredibly stable dividend and was last reduced in 1986. And it is truly the type of stock that can power through almost any downturn. Ultimately, the company is also set to benefit from the increasing demand for clean energy due to AI. The Southern Company has invested in nuclear power in the region and should benefit as a result.
On the date of publication, Alex Sirois 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.
On the date of publication, the responsible editor did not have (either directly or
indirectly) any positions in the securities mentioned in this article.