Utility Stocks Shine: Top Choices for Income Investors in 2024

The utility sector experienced a notable upsurge in 2024. The average yield for utility stocks dipped from about 3.6% to around 2.8%. Although this is still preferable to the 1.2% yield from the S&P 500 index, savvy investors can find better options.

For instance, despite the recent rally, Black Hills Corporation (NYSE: BKH) retains a yield of approximately 4%. Meanwhile, Brookfield Renewable (NYSE: BEP)(NYSE: BEPC) offers a yield as high as 5.6%. Here’s why these stocks present solid opportunities for income-focused investors.

Black Hills: A Reliable Utility with Growth Potential

Black Hills Corporation stands out for its straightforward business model. The company operates regulated natural gas and electric utilities, serving 1.3 million customers in states like Arkansas, Colorado, and Wyoming.

The primary aim is to deliver consistent power while also returning value to investors through dependable dividend increases. Black Hills is labeled a Dividend King, with more than 50 years of raising its dividends annually.

Image source: Getty Images.

Interestingly, Black Hills benefits from regions that exhibit population growth at nearly three times the national average. This increase in customers not only boosts revenues but also facilitates requests for expanded capital investments. Currently, Black Hills has an impressive five-year investment plan totaling $4.3 billion, quite significant for the company’s $4.6 billion market cap.

With the ongoing population growth and planned spending, analysts expect Black Hills to grow earnings by 4% to 6% yearly. Dividend growth should keep pace with earnings growth, suggesting a total return of around 9%, making this utility a fitting choice for conservative investors.

Brookfield: Innovating in Clean Energy

Next on the list is Brookfield Renewable, which, while not a traditional utility, generates and sells electricity. It is among the largest global owners and operators of clean energy facilities, supplying power to companies and utilities through long-term agreements.

Investors have two options with Brookfield: a partnership share class yielding 5.6% and a corporate share class at 4.6%. Although the two represent the same business, the yield difference stems from the varying demand for corporate structures, which some institutional investors may find unsuitable.

Brookfield Renewable offers a comprehensive approach to clean energy investments, encompassing hydroelectric, solar, wind, and nuclear energy operations across various continents.

A unique aspect is its management by Brookfield Asset Management, a significant player in global infrastructure investing. This synergy allows Brookfield Renewable to pursue active portfolio management, acquiring undervalued assets, enhancing operations, and capitalizing on favorable selling conditions.

Brookfield’s management targets annual distribution growth of 5% to 9%, with historical figures around 6%. Combining a 5% yield with the expected growth suggests an appealing total return of about 11%, slightly exceeding average stock market returns. While it may carry more risk than a regulated utility like Black Hills, the focus on clean energy indicates considerable growth capacity ahead.

Keep Utilities in Mind Despite Rising Prices

Both Black Hills and Brookfield Renewable may have cooled off compared to earlier in the utility rally, but they still present valuable high-yield investment opportunities. For those aiming to enhance current income and enjoy future dividend growth, these stocks should remain on the radar.

Is Investing $1,000 in Brookfield Renewable Partners Right for You?

Before making a purchase in Brookfield Renewable Partners, consider the following:

The Motley Fool Stock Advisor team recently highlighted their picks for the 10 best stocks to buy right now… and Brookfield Renewable Partners was not included. The selected stocks could offer significant returns in the coming years.

For instance, when Nvidia was featured on this list in April 2005, an investment of $1,000 would have grown to an astonishing $847,211!*

Stock Advisor provides an accessible strategy for investors, offering guidance in portfolio building and regular updates, along with two new stock recommendations each month. The service has achieved returns that have quadrupled the performance of the S&P 500 since 2002*.

See the 10 stocks »

*Stock Advisor returns as of November 25, 2024

Reuben Gregg Brewer holds positions in Black Hills and Brookfield Renewable Partners. The Motley Fool has interests in and recommends Brookfield Asset Management. They also recommend Brookfield Renewable and Brookfield Renewable Partners. The Motley Fool maintains a disclosure policy.

The views and opinions expressed herein are those of the author and do not reflect the views of Nasdaq, Inc.