3 High-Yield Stocks to Buy in This Boring Sector

Utility companies run a very boring business. They distribute electricity and natural gas to customers according to government-regulated rate structures. There isn’t much upside in this business (demand and prices are relatively stable), but there isn’t much downside either. This allows the utility to generate fairly stable profits, much of which comes from high-yield dividend payments.

Investors looking to add more stability to their portfolio should consider buying boring utility stocks. black hills (B.K.H. 0.15%), integrated edison (ED 0.60%)and duke energy (every 0.37%) It stands out to several Fool.com contributors as a great option for those seeking high yields and sustainable dividends.

Black Hills is a roaring rat

Ruben Gregg Brewer (Black Hills): When it comes to utility stocks, Black Hills, with a market cap of $3.9 billion, is a stock that often flies under the radar screen. That’s a shame, because the regulated natural gas and electric utility is a dividend king, supporting 54 consecutive years of annual dividend increases. The average dividend growth rates over the past 3, 5, and 10 years have all been around 5%, showing remarkable consistency. Meanwhile, the current yield is around 4.5%, which is near the high end of the yield range over the past decade.

BKH dividend yield data from YCharts

In other words, Black Hills looks like a Dividend King on the selling block. But with good reason, utility operations are a capital-intensive business. A sharp rise in interest rates will increase Black Hills’ costs going forward. There’s no way around this, and he also points out that utilities tend to use more leverage than some of their larger peers.

In other words, Black Hills’ customer growth rate was nearly three times that of the U.S. population. The company operates in very attractive markets including Arkansas, Colorado, Iowa, Kansas, Montana, Nebraska, South Dakota, and Wyoming. And this suggests that regulators will adjust the company’s interest rate structure over time to take account of interest rate changes. If you have the patience to wait for that to happen, you can get a historically high dividend yield from a fairly boring Dividend King utility.

king of consistency

Matt DiRallo (Integrated Edison): Consolidated Edison provides electricity and natural gas to: Customers in the New York City metro area. Utilities are a boring business, very Provides predictable cash flow based on steady demand and government-regulated fee structures. This gives Consolidated Edison the following capabilities: stable Income to pay dividends and invest in maintaining and expanding utility infrastructure.

Utilities have been hit hard. Dividend milestone earlier this year. It has achieved 50 consecutive years of annual dividend increases. This is the longest consecutive dividend increase period among listed utility companies. S&P 500. It also led the company to an elite group. dividend king. Consolidated Edison’s increased dividend is currently less than 3.5%, which is more than double the dividend yield of the S&P 500 (about 1.3% based on dividend payments over the past year).

While the company is looking forward to If it continues to increase its dividend, growth is likely to be moderate. Consolidated Edison plans to: Dividend payout ratio Provides 55%-65% of adjusted revenues to fund higher levels of investment following the clean energy transition. This figure is lower than the original target of 60-70%. We plan to retain more revenue to fund growth internally. This strategy will allow Consolidated Edison to grow earnings per share more rapidly in the future. This puts it in a position to potentially generate higher total returns when you add dividend income to the share price appreciation it has to deliver as earnings grow.

Consolidated Edison’s dividend should become more sustainable over the long term as it lowers its payout ratio and invests in supporting the clean energy transition. These features make it an attractive option for those who want it. very Bankable source of income.

Narrowing the focus of this utility should pay big dividends.

Neha Chamaria (Duke Energy): Duke Energy is one of the largest regulated utilities in the United States and operates in growing regions including Florida and the Carolinas. In fact, the company sold its unregulated commercial renewable energy business for $2.8 billion in 2023 and became a fully regulated utility. The company said it would use the net proceeds from the sale, about $1.1 billion, to reduce debt and strengthen its balance sheet.

2023 is also the year Duke Energy adds the largest number of customers in its history and increases its five-year capital investment plan to $73 billion to drive the transition to clean energy. The utility giant is targeting net-zero carbon emissions from power generation by 2050, which will lead to major investments to upgrade its power grid and expand its energy storage, renewable energy, natural gas and nuclear energy assets in the coming years. I planned it.

Duke Energy expects to grow its adjusted earnings per share by 5% to 7% by 2028, driven by a fully regulated portfolio of assets in growing jurisdictions. Combined with the 4% dividend yield, management believes Duke Energy’s investors could almost make a profit. 10% annual return. Duke Energy is also a bankable dividend stock. It has been paying dividends quarterly for 98 years and has increased its dividend over time. This dividend growth has significantly improved shareholder returns thus far. Over the past decade, Duke Energy stock has more than doubled investors’ money when dividends are taken into account.

DUK data from YCharts

With Duke Energy now fully transitioning to a regulated business and strengthening its balance sheet, income investors have solid reasons to consider this boring utility stock.