One of the key considerations when looking for great dividend stocks is how “safe” the company is. Safety in the context of investments means that investors aren’t exposed to too much risk. You wouldn’t want to invest in a double-digit yield company just to see its stock price plummet and effectively wipe out any potential dividend earnings you might have had.
That’s why I often mix up my search for high-yield stocks with a few safety features.And when people say “safe,” I often think of utility companies.
Utility companies provide services that people need daily, such as water, energy, gas, telecom, etc. The constant demand for their offerings results in predictable cash flow, making them less susceptible to the ebb and flow of demand-based price movement.
As such, utility companies are often the favored “safe harbor” investments when recessions and downturns hit the markets.
So, today, let’s look at three of the highest-yielding utility companies and see if they can help make your portfolio a bit more bulletproof.
How I Screened For The Following Stocks
To get the list of the best high-yield utility stocks in the market, I used Barchart’s Watchlist feature. In case you didn’t know, you can get up to five free watchlists with a free Barchart account and unlimited watchlists with Premier.
In my account, I have a few pre-prepared watchlists that I like to update periodically.
One of them is solely focused on utility stocks.
From that list, I went to the Stock Screener page by clicking on Screener and used the following criteria:
- Current Analyst Ratings: Set to 4 and above, which indicates a moderate to strong buy recommendation from analysts.
- Annual Dividend Yield (%): Left blank so that dividend yields appear as a column on the search results, which I can then rearrange at will.
The addition of analyst ratings in this screen adds another level of safety. But, as always, I’ll review each company’s financials to see if it truly deserves its buy recommendations.
Using these criteria, I got 24 companies. I took the top three based on dividend yield and arranged them from lowest to highest.
Now, let’s get into the highest-yielding utility companies today.
Edison International (EIX)
Edison International is a utility holding company that primarily operates in South California. With its subsidiaries, Southern California Edison and Edison Energy, it is one of the largest public utility companies in the US.
The company's origins date back to 1886. It has a long history of adapting to macroeconomic conditions and customer demands, lending to its longevity. Today, Edison International provides power from traditional natural gas, fuel, and nuclear sources, as well as more renewable options like solar and hydro.
In 2023, Edison International reached $1.2 billion in net income (or $3.12 EPS), growing 96% from FY’22’s $612 million.
EIX stock pays a 78-cent quarterly dividend, translating to a $3.12 annual rate and a healthy 4.20% yield. Even better, the company has raised dividends for 20 years and is five short years away from being on the Dividend Aristocrats list. It also has a 4.0 rating, signifying a moderate buy recommendation based on 15 analysts.
Portland General Electric Company (POR)
Oregon’s largest utility provider, Portland General Electric Company, operates across 51 cities in the state and provides power from various sources, including coal and gas. Like most energy providers, it also offers wind and solar generation.
Like the previous company, Portland General Electric has been in business since 1889. You’ll notice that longevity is a running theme in these high-yield utility companies, which just lends more weight to their safety as long-term investments.
Of course, being in the game long enough is not the only consideration. On that note, Portland General Electric is doing well financially. 2023 saw higher revenue, slightly offset by higher expenses and property taxes. EPS ended at $2.33, a slight dip from $2.61 last year.
Still, analysts see a lot of potential for POR stock, as eight gave it an average score of 4.25. The company also pays a 50-cent quarterly or $2 annually, translating to a 4.57% yield.
Companhia Energética de Minas Gerais ADR (CIG)
Companhia Energética de Minas Gerais, also known as CEMIG, might be worth considering if you're looking for a high-risk, high-reward utility outside the US. The company operates as a holding company, operating one of the main electricity providers in Brazil. The company sources electricity from solar, wind, and hydroelectric sources and remains part of the Down Jones Sustainability World Index as of December 2023, marking it as a potential green flag for ESG investors.
Financially, CEMIG has demonstrated excellent growth. While the company saw a slight increase in revenue in FY’23, its most notable metric is its earnings, which reached $2.62 per share, up from $1.86 in 2022. For additional context, 2021’s EPS was $1.70.
Based on two ratings, analysts rate CIG stock as 4.0 or a moderate buy. As for dividends, well, the company doesn’t do neat, quarterly payouts from which we can easily derive annual rates. CIG had four dividend payouts in 2023, five in 2022, and three in 2021 (not to mention that all had different rates and schedules).
However, on a trailing twelve-month basis, CIG stock paid about 20 cents per share, which reflects a 7.81% yield.
While CEMIG is a high-yielding BRICS utility, keep in mind that stability and geopolitical risks can easily derail a position. As a result, this could be a more speculative play.
Final Thoughts
Choosing dividend stocks from the utility sector can provide investors with a measure of safety that can’t be matched by other, more popular, and infinitely more volatile stocks. However, dividend yields shouldn’t be the only consideration when picking utility stocks. Always do your due diligence and ensure your picks align with your investment goals.
On the date of publication, Rick Orford did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.