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Top 3 Reliable Utility Stocks for Stable Long-Term Growth

Rick Orford - Barchart - Mon Oct 7, 8:02AM CDT

Quality dividend stocks can be the cornerstone of your retirement portfolio. Even if you’re adventurous, having a few income-friendly investments can help you with consistent earnings, especially during market downturns. Choosing reliable income stocks from recession-resistant sectors, like utilities, can be an excellent way to go.

Now, blend the idea with utilities—and you have a perfect recipe for long-term income.

So, today, let’s look at three reliable utility stocks that can help improve your income generation.

How I Came Up With The Following Stocks

I have a utility stocks list handy, courtesy of Barchart’s watchlist feature. From there, I screened the list using the following filters on the Stock Screener page:

Dividend Payout Ratio: 50% or less. With this filter, I’ll get utilities that pay less of their earnings as dividends to shareholders, so the lower the dividend payout ratio, the better.
Current Analyst Rating: 3.5 (moderate buy) to 5 (strong buy). Based on analyst estimates, I want stocks with an average moderate buy rating. It’s not a bad thing to consider expert advice every now and then.
Number of Analysts: 8 or more. Of course, how many experts are talking about a company matters just as much as what they’re saying. So, for this screen, I want companies covered by eight or more analysts.
Annual Dividend Yield: Blank, as usual, so that it appears on the screen results.

With those filters set, I ran the screen and found five utility stock candidates for the list. Then, I rearranged the list from highest to lowest dividend yields. So, let’s start with the top spot:

AES Corporation (AES)

AES Corporation is a global energy company headquartered in Arlington, Virginia. It operates in various countries and provides sustainable energy solutions, including renewable power, utilities, and energy storage. AES generates and distributes electricity through traditional and renewable sources like wind, solar, gas, coal in addition to carbon-neutral LNG.

One of the hallmarks of a reliable dividend stock is a company's ability to raise dividends without significantly slicing through its earnings. AES does a good job here, with its latest quarterly payout of 17.25 cents per share, representing a nearly 4% uptick from last year’s 16.60 cents quarterly dividend.

So, the current year’s payout is 69 cents annually or a 3.65% yield. Its dividend payout ratio is also low, at 24.97%, meaning AES has ample room to continue its dividend increase streak.

Source: AES Corporation - Barchart.com

The company also has the highest rating out of the three stocks I’ll discuss here: 4.42 (moderate buy), based on 12 analysts. A strong dividend profile and good analyst coverage and recommendations are sure to attract investors to AES stock, so better get a move on.

Atmos Energy Corporation (ATO)

Atmos Energy Corporation is one of the largest natural gas distributors in the United States, serving over 3 million customers across multiple states. It operates in regulated utility markets, focusing on delivering natural gas safely and reliably to residential, commercial, and industrial customers.

ATO stock has had quite a good run since breaking out of its $120 resistance level back in July. Most analysts covering the stock are moderately optimistic about its future performance, giving it a 4.0 average based on 11 scores, with a high target price of $155.

The company pays $3.24 per share (annually), reflecting a 2.32% yield while maintaining a respectable 46.15% payout ratio and a 52.58% 5-year dividend growth rate.

Source: Atmos Energy Corporation - Barchart.com

NRG Energy (NRG)

NRG Energy, Inc. (NRG) is a leading integrated power company that offers millions of customers electricity generation, retail energy services, and energy solutions. The company operates a diverse portfolio of power plants, utilizing natural gas (44% of its portfolio), coal (51%), and renewable energy sources such as wind and solar (2%).

Source: NRG Energy - Barchart.com

Like the other two companies, NRG shows a strong dedication to shareholder value through dividend increases. Its latest annual payout comes to $1.63 per share, representing a decent 1.71% yield. It also has a low 29.33% dividend payout ratio and, more impressively, a 1,158.33% 5-year dividend growth rate. That’s quite a significant jump from the dividend payout slump it had in 2016-2019, and it only goes to show that NRG can make your investment worthwhile.

Final Thoughts

Utility stocks are some of the best income-generating investments due to their recession-resistant nature. These three candidates are excellent contenders if you want to add one to your portfolio.

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On the date of publication, Rick Orford did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.