5 Best Utility Stocks to Buy in July 2021

Utility stocks are seen as defensive and many of them offer good dividend yields. Many utilities are regulated businesses with predictable cash flows. What’re the best utility stocks to buy in July 2021?

Utility stocks are especially in demand when we are in a low interest rate environment as we currently are. While the US Federal Reserve is expected to raise rates in the future, we’ve seen a fall in bond yields recently as markets don’t see the US central bank acting in a hurry. The fall in bond yields also reflects the mixed opinion over the economic recovery. With an uncertain economic outlook and low bond yields, utility stocks can be a good bet for your portfolio.

1. American Water Works Company (NYSE: AWK)

AWK is a public utility company that provides drinking and wastewater services. The company’s earnings and dividend growth have been stable. In the first quarter of 2021, it reported an EPS of $0.73 which was 7.4% higher than the corresponding period last year. For 2021, it reaffirmed the EPS guidance of $4.18-$4.28.

In April, it said that it will acquire the wastewater treatment and collection system for the City of York. The transaction will add 45,000 customer equivalents for the company. AWK has been expanding its business, both through acquisitions and organic growth, and expects its earnings to rise between 7-10% between 2020 to 2024. The company has been increasing its dividend and its current yield is around 1.4%.

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AWK looks like a good utility stock to buy

AWK looks bullish on the charts also and trades above the 50-day, 100-day, and 200-day SMA. The stock trades at an NTM (next-12 months) PE multiple of 39.5x. Meanwhile, Wall Street analysts have mixed ratings on the stock and its median target price of $168 implies an upside of only 1.1% over current prices. Its lowest target price is $146 which is a discount of over 12.1% while the highest target price of $181 is a premium of 8.9% over current prices.

Of the 18 analysts polled by CNN Business, 8 rate the utility stock as a buy while nine rates it as a hold. Only one analyst has a sell or equivalent rating on the stock.

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2. Edison International (NYSE: EIX)

If you are looking at a utility company with a high dividend yield Edison International will fit the bill. The stock has a dividend yield of 4.7% which looks healthy. The stock is down 7% so far in 2021 and the underperformance could be a buying opportunity. The company is a power company based in California and has both renewable and non-renewable facilities as part of its portfolio.

Looking at the technical indicators, EIX trades below the 50-day, 100-day, and 200-day SMA. The first key resistance for the stock is the 50-day SMA which is currently at $57.04.  The stock meanwhile looks attractive from a valuation standpoint. It trades at an NTM PE multiple of 13.6x. The multiple has averaged 13.8x and 15.2x over the last three years and five years.

Wall Street analysts are generally bullish on EIX stock and its median target price of $71.50 implies an upside of 28.9% over current prices. Its lowest target price is $59 while its highest target price is $79.

Of the 18 analysts polled by CNN Business, 12 rate the utility stock as a buy while five rate it as a hold. Only one analyst has a sell or equivalent rating on the stock.

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3. Entergy Corporation (NYSE: ETR)

With a year-to-date gain of about 5%, Entergy stock is underperforming the S&P 500. However, its dividend yield of 3.7% makes it a utility stock worth considering. Entergy is an integrated energy company and produces as well as distributes energy to 2.9 million customers across Arkansas, Louisiana, Mississippi, and Texas.

The company has 30,000 megawatts electricity generation capacity which includes 7,000 megawatts of nuclear capacity and 2,700 megawatts of renewable energy capacity. However, the bulk of the company’s electricity generation is tilted towards fossil fuels and it has 28 power plants producing electricity through fossil fuels.

Wall Street analysts are bullish on Entergy Corporation stock and its median target price of $120 implies an upside of 15.6% over current prices. Its lowest target price is $110 while its highest target price is $127. The utility stock even trades below its street lowest target price.

Of the 17 analysts polled by CNN Business, 13 rate ETR stock as a buy while the remaining four rate it as a hold. None of the analysts have a sell rating on Entergy Corporation. Earlier this month, Morgan Stanley had lowered the stock’s target price from $119 to $117. In April, Wells Fargo had boosted its target price on the utility stock from $105 to $119 while Vertical Research had upgraded it from a hold to buy and assigned a target price of $120.

ETR stock technical analysis

ETR stock has crossed above the 100-day SMA but trades below the 50-day SMA that has been a strong resistance. If the stock can break above the 50-day SMA, it would signal further technical bullishness. The utility stock’s 12,26 MACD (moving average convergence divergence) also gives a buy signal.

ETR looks like an attractive utility stock

ETR stock currently trades at an NTM PE multiple of 17.3x. The multiples are in line with what it has traded over the last five years. The company does not offer much growth and its revenues have fallen in four out of the last five years. However, barring 2018, the company has managed to increase its EBITDA in all these years. Analysts expect the company’s revenues to rise 7.3% in 2021 after a fall of 7% in 2020.

That said, despite the expected rise, the company’s revenues in 2021 are expected to be only marginally higher than what it posted in 2016.  However, if you are looking at a stable utility stock with a good dividend yield, ETR would fit the bill.

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4. NextEra Energy (NYSE: NEE)

NextEra Energy is the world’s largest utility company and has 45,500 megawatts of net generating capacity. The company is also a play on renewable energy and is the largest wind and solar energy producer globally. The stock is up only about 3.6% in 2021 and is now down 12.3% from its peaks and is in the correction zone. The stock currently pays a dividend yield of around 2% which is higher than the S&P 500’s dividend yield.

While utilities are generally known for their low topline growth, NextEra has been investing billions in its operations. Analysts expect the utility company’s revenues to rise 12.5% in 2021 and 6.7% in 2022. The higher growth in 2021 is albeit coming from a lower base as the company’s revenues had fallen 6.3% last year. Most utility companies reported lower revenues in 2020 amid the COVID-19 pandemic.

NEE looks like a good utility stock

Looking at the valuations, NEE stock trades at an NTM PE of 30.1x which is in line with what it has traded over the last year. However, the multiples are a premium over its longer-term averages. The stock has seen a rerating amid the spike in all companies in the green energy ecosystem.

The stock is looking bullish on the charts also and trades above the 50-day, 100-day, and 200-day SMA. The 200-day SMA has been strong support for the stock.

Wall Street analysts are mixed on this utility stock and its median target price of $89 implies an upside of 15.7% over current prices. Its lowest target price is $78 while its highest target price is $101. The utility stock even trades below its street lowest target price while its highest target price implies an upside of 31% over the next 12 months.

Of the 21 analysts polled by CNN Business, 14 rate NextEra stock as a buy while the remaining seven rate it as a hold. None of the analysts have a sell rating on the utility stock.

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5. Brookfield Infrastructure Partners (NYSE: BIP)

Brookfield Infrastructure Partners is among the largest owners and operators of diverse global infrastructure networks. The company owns assets that are spread across water, freight, energy, and passengers. The stock has delivered a CAGR of 15% since its inception in 2008. Currently, it has a dividend yield of 3.7% which is more than twice that of the S&P 500. The company targets a long-term return on equity of 12-15% and is targeting an annual distribution growth between 5-9%.

BIP stock technical analysis

BIP stock has crossed above the 50-day SMA and also trades above the 100-day and 200-day SMA. However, after the recent correction, it trades below the 10-day, 20-day, and 30-day SMA.  The 12,26 MACD also gives a sell indicator. However, the 14-day RSI is a neutral indicator and indicates neither overbought nor oversold positions.

BIP stock trades at an NTM PE multiple of 50.6x which is lower than its one-year and three-year averages. However, it is in line with the five-year average. The stock’s median target price is $61 which is a premium of 11.5% over current prices. BIP looks like a good utility stock to buy especially if you are looking at consistent dividends.

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