3 Top Utility Stocks With High Dividend Yields

The current macro environment is challenging for stock market investors. The ongoing war in Ukraine, and relatively high interest rates have clouded the picture for the U.S. and global economy. In an uncertain environment like this, many investors are looking for stocks that are crisis-proven and have a high likelihood of maintaining their dividends.

Electric utilities can be a good industry to look for such stocks, as electricity demand, at least by consumers, is not very cyclical, and generally holds up well even during major economic downturns, as customers still use electricity for heating and cooling their homes, for cooking, and more.

Here we'll showcase three electric utilities that have not only resilient business models, but that have also proven that their dividends are safe during a severe recession.

Fuel for Growth

National Fuel Gas Co. (NFG) is a diversified energy company that operates in five business segments: Exploration & Production, Pipeline & Storage, Gathering, Utility, and Energy Marketing. The largest segment of the company is Exploration & Production.

In early November, National Fuel Gas reported financial results for the fourth quarter of fiscal 2023. The company grew its production 7% over the prior year's quarter thanks to the development of core acreage positions in Appalachia. However, the average realized price of natural gas fell 18%, from $2.84 to $2.33. As a result, adjusted earnings per share declined 34%, from $1.19 to $0.78, and missed the analysts' consensus by $0.07. The company has beaten the analysts' estimates in 15 of the last 18 quarters.

Despite the plunge in the price of natural gas this year vs. blowout prices last year amid the Ukrainian crisis, National Fuel Gas posted just a 12% decrease in its annual EPS thanks to strong production growth and its efficient operations. The price of natural gas has bounced in recent months thanks to the surge of U.S. consumption to all-time highs. As a result, National Fuel Gas provided strong guidance for fiscal 2024. It expects EPS of $5.40-$5.90, thus implying 9% growth at the mid-point.

National Fuel Gas pursues growth by expanding its natural gas production and its pipeline network. The company has grown its EPS at a 4.4% average annual rate over the last decade. Moreover, the company grew its proved reserves 8% in 2022 and 9% in 2023. This certainly bodes well for future growth prospects.

National Fuel Gas has a healthy balance sheet while its interest coverage level stands at a strong 5.7. Moreover, its dividend payout ratio is sufficiently low to enable continued dividend growth even if earnings stall temporarily. Management has always targeted a dividend payout ratio around 50% in order to have a wide margin of safety against the wide fluctuations of the price of natural gas.

NFG has increased its dividend for 53 years.

Dividends That Smell Like a Rose

Portland General Electric (POR) is an electric utility based in Portland, Oregon, providing electricity to more than 900,000 customers in 51 cities. The company owns or contracts more than 3.3 gigawatts of energy generation, between gas, coal, wind & solar, and hydro. Portland General has a market capitalization of $4.1 billion and 3,000 full-time employees. In 2022, the corporation generated $2.6 billion in revenue.

The company is diversified by customer, with 52% of retail deliveries going to residential customers, 33% to commercial clients, and 14% to industrial clients. The company is forecasting that 80% of its power delivered to customers by 2030 will be carbon free, and 100% carbon free by 2040.

Portland General reported third-quarter 2023 results on October 27. It posted net income of $47 million for the third quarter. The company earned $0.46 per diluted share on a GAAP basis, compared to $0.65 in Q3 2022. Retail energy deliveries in Q3 increased 2.6% compared to the same prior-year period. This increase was driven by growth in residential, commercial, and industrial demand. Management narrowed its 2023 full-year guidance for adjusted EPS of $2.63 at the midpoint.

Management also estimates that the company can grow the dividend by 5% to 7% over the long term through increased annual energy deliveries, as a result of commercial growth as the economy recovers, and strong growth in industrial energy demand due to customer expansion. Rate increases, customer additions, and completion of construction projects will all further fuel POR's earnings growth.

On April 22, Portland General Electric announced a 5% increase to the quarterly dividend to $0.475 per share. The company has increased its dividend for 16 consecutive years.

Raise a Mug Full of This ALE

Allete, Inc. (ALE) is an electric services company which operates primarily in the upper Midwest and invests in transmission infrastructure and other energy-related businesses. Allete owns Minnesota Power, and electric utility which serves over 145,000 residents in 15 municipalities and certain large industrial customers. Other businesses include BNI Energy, Allete Clean Energy, Superior Water, Light and Power and Allete Renewable Resources.

Allete reported third-quarter 2023 results on November 2, posting consolidated earnings of $1.49 per share, a nearly three-fold increase compared to $0.59 earned in Q3 2022. The company's regulated operations segment generated net income of $34 million, while the clean energy segment reported net income of $54.8 million. Management increased its fiscal 2023 outlook for EPS, to between $4.30 to $4.40 (up from $3.55 to $3.85 previously).

Future growth will be fueled organically by new customer additions, as well as through a recent acquisition. In 2022, Allete completed its acquisition of New Energy Equity, a top distributed solar developer in the U.S, for roughly $166 million. New Energy has completed more than 250 distributed solar projects totaling over 330 megawatts across the U.S. Additionally, New Energy had a development pipeline of roughly 2 gigawatts across 26 states over the following three years.

Allete has increased its dividend for 12 years, including a 2023 raise of 4% to the dividend to $2.71 per share annually. The company has targeted average EPS growth of 5% to 7% annually, all while maintaining the dividend which it has paid since 1948.

The company maintains a target payout ratio in the range of 60% to 65%. The estimated payout ratio of 62% is within target, thus we don't see a threat to the dividend as utilities often have a solid stream of recurring, predictable revenue.

At the time of publication, Ciura had no positions in any stocks mentioned.