8 Top 'Utility Players' to Power Your Income Portfolio

Utilities may not be the sexiest industry to discuss, but eight leading financial advisors and contributors to MoneyShow.com see long-term value for investors seeking a recession-resistant sector offering that offers both growth and income. Tom Hutchinson, Cabot Dividend Investor NextEra Energy is actually two companies in one; it is a utility that combines the steady cash flow of regulated Florida Power and Light, known as FPL, with the growth of alternative energy big shot NextEra Energy Resources. FPL is a traditional regulated utility while NextEra Energy Resources is one of the largest owners of solar and wind power in the world. Each company accounts for roughly half of revenues. It gets steady performance and cash flow from FPL and growth from NextEra Energy Resources, where fourth-quarter earnings were up 37.5% from the year-ago quarter. The combination is successful. The stock has significantly outperformed other utilities and the overall market over the longer term and it should continue to do so in the future. The utility recently reported fourth-quarter earnings that were slightly below consensus estimates. That said, the company reported a very strong 2018, with earnings up 15% year over year. The stock provides a current yield of 2.4%. Bryan Perry, Cash Machine Dominion Energy is a mid-Atlantic power producer serving Virginia and North Carolina and new entrant in the export of LNG. The company has completed its merger with SCANA as of Jan. 1; that will bring another long-term and solid growth driver to the company for many years to come. SCANA is a big power producer in the Carolinas. As a result of this deal, Dominion will be delivering energy to roughly 6.5 million regulated customer accounts. Both Virginia and North Carolina are enjoying a steady migration of new residents and businesses, implying solid future demand for power that will keep the top and bottom lines humming. The company has an excellent history of raising dividends with the current annual payout translating to a current yield of 5.0%. Dominion announced fourth-quarter numbers on Feb. 1, when earnings missed by 2 cents. But its revenues of $3.36 billion were up 4.7% year over year and beat estimates by $110 million. The stock is a buy under $77. Mike Larson, Under the Radar Stocks Middlesex Water Co. is a water utility firm that was incorporated all the way back in 1897. The company's coverage area now spans parts of New Jersey, Pennsylvania and Delaware. It provides water production and distribution services, wastewater collection and treatment, and system design and construction expertise to tens of thousands of residential and commercial customers. The business isn't sexy. But it is a consistent and profitable one. What I really like is the firm's history of paying respectable, growing dividends; Middlesex Water has paid a dividend every single year since 1912. Plus, it has raised its payout for the last 46 years in a row. The most recent dividend of 24 cents per share works out to an indicated, annualized yield of around 1.7%. It was also a 7.3% increase from a year earlier. Meanwhile, the stock has been piling up respectable capital gains. Its shares have risen more than 47% in the last year despite a challenging market overall. They continued to advance after a notable upside breakout in November 2018. That's the kind of relative strength and performance I like to see. So, I recommend you add Middlesex Water to your model portfolio. AES Corp. , a Virginia-based utility, is a company that truly has been to financial hell and back again. Swept up in the merchant power/global expansion trend that roared through the utility industry in the late 1990s, its shares surged from less than $5 to just above $72 and then crashed and burned when Enron and others of its ilk imploded. The stock traded for less than a buck in the 2000-'02 bear market, and less than $5 again at the depths of the 2007-'09 bear market. But a funny thing has happened since then. It has slowly and steadily risen from the grave thanks to a series of prudent restructurings and reorganizations. The utility has shrunk its geographic footprint, slashed costs and overhead, and sold billions of dollars in assets. It also shifted its focus toward generating power from renewable sources of energy rather than coal, and expanded its battery-based energy-storage business. Unlike many corporations that have been loading up with debt, AES has also been doing the opposite. The company says it's on track to achieve an investment-grade debt rating by as early as next year. Throw in the stock's 3.2% indicated dividend yield, and AES looks like a decent risk/reward play. Richard Moroney, Dow Theory Forecasts Exelon , with a stock market value of about $45 billion, is one of the largest utilities. It also earns the second-highest Quadrix Overall score in the sector (75 out of 100) and at least 95 in both sector-specific ranks. Exelon is in the midst of a multiyear plan to de-emphasize nuclear power by selling its plants, a move that over time should reduce both operating uncertainty and headline risk. Cost cuts deserve much of the credit for bottom line gains, and the company projects another $200 million in reductions by 2021. But unlike many large utilities, Exelon augments its efficiency gains with real growth; a $21 billion, three-year capital-spending program should grow the rate base at a 7.4% annualized rate. Exelon, which yields 3.0%, plans to boost its dividend 5% a year over the next three years. Exelon is joining our Top 15 Utilities portfolio. Jacob Kilstein, Argus Research The electric utility business at CMS Energy Corp. provides a stable earnings stream supported by continued capital investment. Over the last fifteen years, earnings per share has grown at an above-peer average rate of 7%. Management continues to project annual EPS growth of 6%-8% -- better than the average of 5%-7% for most utilities. The company benefits from a favorable location in Michigan, with a rising population, a high proportion of skilled labor, a business-friendly regulatory environment, and relatively low exposure to severe weather events. We believe that the company's consistent, above-average growth more than offsets concerns about the stock's high valuation or the negative impact of rising interest rates. The shares trade at 20.5-times our 2019 EPS forecast, above the peer median of 18.8 for electric and gas utilities with fully regulated operations. Our $56 target implies a P/E of 22.4, which we feel is appropriate given the company's consistent above-average performance. Our 12-month target price is $56 per share. Brit Ryle, The Wealth Advisory A closed-end fund (CEF) is like a mutual fund, except that the assets in the CEF and the number of shares outstanding are fixed. Management fees for CEFs are usually much lower than for actively managed mutual funds, simply due to the lower amount of effort they require from portfolio managers. The bottom line is that CEFs are cheaper alternatives to other types of investment funds, which still provide exposure to all the same markets as their more expensive and less profitable peers. The DNP Select Income Fund is a diversified, closed-end management investment company. The fund's primary investment objectives are current income and long-term growth of income. Approximately 65% of the portfolio is invested in electric, gas, and water utilities. About 20% is invested in oil and gas storage, transportation, and production. Some 14% is invested in communications and REITs. The company invests in common stock, bonds, and cash; master limited partnerships; and preferred stock. The current dividend yield: is 7.03%. The current net asset value (NAV) is $9.07. Michael Foster, Contrarian Outlook Billionaire Mario Gabelli, has been managing money for investors since founding his own firm, GAMCO Investors, in 1976. He knows when something is absurdly cheap-especially when it's his own fund! That's undoubtedly why he bought over $2.6 million worth of shares in the Gabelli Global Utility and Income Trust . This can be considered a sleeper fund with just $326 million of assets. So why is Gabelli buying it now? Let's start with that huge dividend (yielding around 7%), which has been rock-solid, holding fast since 2011, while many other high-yielding stocks and closed-end funds have cut their payouts. That's because the fund holds a bevy of utilities that Gabelli picked up at great prices. In turn, these companies have been steadily hiking their own dividends. The fund has seen its portfolio steadily rise in the long run. Sure, there was a big dip in 2018, but that was an anomaly. With a decline in its portfolio lasting nearly a full year, this recent weakness has exceeded the five-month dip in 2017 and even the eight-month dip in 2015. This is a clear sign that Gabelli Global Utility is oversold and a turnaround is just around the corner. Finally, there's one more reason to put this fund on your buy list: the U.S. dollar has soared against foreign currencies over the last year because of the Federal Reserve's interest-rate hikes, which have gone too far, too fast. Fed Chair Jerome Powell has admitted as much, telling the markets that interest rate hikes in 2019 will be slow, if there are any at all. That, in turn, will weaken the dollar, boosting the fund's foreign-income stream. When investors figure that out, expect them to jump in and grab this fund's attractive yield.

8 Top 'Utility Players' to Power Your Income Portfolio

This recession-resistant sector offers attractive growth and income.

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