In this piece, we will take a look at the 13 most profitable utility stocks to buy now. If you want to skip our analysis of the utility industry and the recent developments, then you can take a look at the 5 Most Profitable Utility Stocks Now.
The utility industry stands to be disrupted the most by the ongoing global shift to renewable energy. Ever since discovering the marvels of internal combustion, humanity has been generating copious amounts of power from fossil fuels. This powers up our industries, houses, schools, and other modern day infrastructure without which modern life would be impossible. At the same time, the excessive reliance on fossil fuels has impacted the environment and raised the stakes for a shift to a future powered by renewable energy.
For the utility industry and the broader energy sector as a whole, particularly when it comes to making a plunge to renewables, December 2023 was an important month. This is because as the month kicked off, delegates from more than a hundred countries agreed to triple global renewable energy capacity by 2030. This is quite a sizeable commitment since it means that thousands of gigawatts of capacity will have to be added by the end of the decade. For the utility sector, if the countries end up taking concrete steps to meet their commitments, then the COP28 energy deal will be the biggest disruptor.
The attempt to triple global renewable energy capacity also means that the supply chain for renewable energy power generation equipment will also have to scale up its operations. To understand the importance of a robust supply chain to help the world meet its renewable energy commitments, consider Willis Towers Watson Public Limited Company (NASDAQ;WTW)'s Renewable Energy Supply Chain Risk Report for 2023. The report polled companies that are involved in renewable energy supply chain and risk management to share that nearly half (44%) of the respondents highlighted supply chain risks as being one of the biggest threats to the renewable energy industry. Another key concern among the firms was economic uncertainty, with high inflation making it difficult for key component makers to profitably operate their businesses.
Shifting gears, the tail end of 2023 has seen utility stocks come under pressure as global financial conditions are significantly different than the environment before the coronavirus pandemic. Utility stocks are typically considered safe haven investments that attract capital when the economic future is unclear. This is because unlike firms, say as Apple Inc. (NASDAQ:AAPL) whose products depend on discretionary spending power, the utility industry knows that the demand for its products is always there because of the indispensable need for energy. As a result, if investors perceive that the economic outlook is improving and the chances of a recession are low, then money flows out of utility stocks and into high risk stock market sectors.
Their stable business model and earnings also means that utility stocks are dividend paying securities. Their dividends introduce another component to their valuations, i.e. the dividend yield. A stock's dividend yield is the dividend payout divided by the share price, and it influences investor decisions to buy the shares. Right now, interest rates are at record highs, and this has led to the utility sector coming under pressure on the market since higher rates mean money flows into stable markets and away from stocks. For instance, consider the Utilities Select Sector SPDR - an exchange traded fund (ETF) made of 30 stocks. The ETF is down 9.2% year to date, to reflect the shifting sentiment around global economic prospects.
Diving deeper, we also took a look at the 15 Worst Performing Utility Stocks in 2023 to see which utility stocks were the biggest losers on the stock market as of August 2023. Within this list, the three worst performers were Via Renewables, Inc. (NASDAQ:VIA), Heliogen, Inc. (NYSE:HLGN), and Fusion Fuel Green PLC (NASDAQ:HTOO). Additionally, if you're wondering which utility stocks might make for ripe picking given the recent valuation dips, then you can also read 11 Most Undervalued Utility Stocks to Buy According to Hedge Funds.
So, as 2023 ends, we decided to take a look at the most profitable utility stocks, out of which the top three are The Southern Company (NYSE:SO), NextEra Energy, Inc. (NYSE:NEE), and National Grid plc (NYSE:NGG).
13 Most Profitable Utility Stocks Now
Aerial view of a natural gas fired power plant glowing against the night sky.
Our Methodology
To make our list of the most profitable utility stocks, we first made a list of the 30 biggest utility companies that trade on the NASDAQ and NYSE stock markets in terms of their market capitalization. Then, they were ranked according to their trailing twelve month net income, and the most profitable utility stocks were selected.
Vistra Corp. (NYSE:VST) is a diversified mid sized American power producer that relies on conventional and renewable energy sources for its operations. It marks a strong start to our list of the most profitable utility stocks since the shares are rated Strong Buy on average and analysts have an average share price target of $40.30.
By the end of 2023's third quarter, 52 out of the 910 hedge funds surveyed by Insider Monkey were the firm's investors. Vistra Corp. (NYSE:VST)'s largest hedge fund investor is Howard Marks's Oaktree Capital Management due to its $298 million investment.
Along with The Southern Company (NYSE:SO), NextEra Energy, Inc. (NYSE:NEE), and National Grid plc (NYSE:NGG)., is a highly profitable utility stock.
WEC Energy Group, Inc. (NYSE:WEC) is an American natural gas and electricity provider headquartered in Milwaukee, Wisconsin. The firm has beaten analyst EPS estimates in all four of its latest quarters, but the shares are down 12% year to date.
During Q3 2023, 25 out of the 910 hedge funds part of Insider Monkey's database had held a stake in WEC Energy Group, Inc. (NYSE:WEC). Greg Poole's Echo Street Capital Management was the firm's largest shareholder in our database as it owns 585,430 shares that are worth $47.1 million.
Dominion Energy, Inc. (NYSE:D) is one of the biggest utilities in America due to its power generation capacity of roughly 31 gigawatts. December 2023 marked an important milestone for the company as its 20 megawatt battery storage facility came online in Virginia.
Insider Monkey took a look at 910 hedge funds for their third quarter of 2023 shareholdings to find that 26 had invested in the company. Dominion Energy, Inc. (NYSE:D)'s biggest investor is Stuart J. Zimmer's Zimmer Partners through its $238 million stake.
Xcel Energy Inc. (NASDAQ:XEL) is a diversified American utility that generates power through conventional and renewable energy sources. It faced a minor reputational and financial setback in December 2023 when a regulator fined it $14,000 for radioactive leaks at a nuclear power plant.
As of September 2023 end, 25 out of the 910 hedge funds profiled by Insider Monkey had held a stake in Xcel Energy Inc. (NASDAQ:XEL). Israel Englander's Millennium Management was the largest shareholder as it held a $163 million stake.
PG&E Corporation (NYSE:PCG) serves the energy needs of residents living in California. It scored a win in December 2023 when its Diablo Canyon nuclear power plant - California's only plant of the kind - secured a five year operating extension.
By the end of this year's third quarter, 49 out of the 910 hedge funds part of Insider Monkey's database had invested in the firm. PG&E Corporation (NYSE:PCG)'s biggest hedge investor is Dan Loeb's Third Point due to its $917 million investment.
Exelon Corporation (NASDAQ:EXC) buys and sells electricity. The tail end of 2023 is proving to be an important period for the firm, with big benefits if its campaign to secure preferential rights for power distribution firms in regional areas is successful.
As of September 2023, 36 out of the 910 hedge funds polled by Insider Monkey were Exelon Corporation (NASDAQ:EXC)'s shareholders. Out of these, the largest shareholder is Michael Gelband's ExodusPoint Capital as it owned $130 million worth of shares.
7. American Electric Power Company, Inc. (NASDAQ:AEP)
Latest TTM Net Income: $2.2 billion
American Electric Power Company, Inc. (NASDAQ:AEP) is one of the oldest companies on our list since it was set up in 1906. Like other utilities, it is also investing heavily in the renewables space. For this purpose, it announced a $43 billion capital allocation plan for five years in November 2023.
Insider Monkey's September quarter of 2023 survey covering 910 hedge funds revealed that 39 had held the utility's shares. American Electric Power Company, Inc. (NASDAQ:AEP)'s biggest hedge fund investor is Jacob Mitchell's Antipodes Partners courtesy of its $145 million stake.
Consolidated Edison, Inc. (NYSE:ED) is an electricity and gas utility headquartered in New York, New York. Despite having beaten analyst EPS estimates in three out of its four latest quarters, the firm's shares are rated Hold on average with little average share price target upside.
During 2023's third quarter, 27 out of the 910 hedge funds covered by Insider Monkey's research had bought and owned Consolidated Edison, Inc. (NYSE:ED)'s shares. Cliff Asness's AQR Capital Management was the largest shareholder through its $74.6 million investment.