5 Best Utility Stocks to Buy in November 2021

Utility stocks are an attractive asset class, especially for defensive investors. These companies typically have stable earnings and tend to outperform in an economic downcycle as investors ditch cyclical and high beta names for stable and defensive stocks.

Some of the utility stocks pay attractive dividends. Here are five of the best utility stocks that you can buy in November 2021.

1. NRG Energy (NYSE: NRG)

NRG is an integrated utility company that has energy generation as well as utility operations and supplies to both residential and commercial customers. The company has a generation capacity of 23,000 MW and has added another natural gas platform. It has millions of customers on the platform and is the leading energy provider in the US.

NRG stock has been out of favor with markets and is trading almost flat for the year, underperforming the markets. The stock is also negative for the last three years. Among others, the company’s fossil-fuel heavy generation portfolio seems to be weighing on the sentiments. Meanwhile, NRG has also been pivoting towards green energy and has set a target of being carbon neutral by 2050.

NRG is a utility stock with a good dividend yield

NRG has a dividend yield of 3.5% which looks attractive. The stock trades at an NTM (next-12 months) PE multiple of 8.3x, which looks reasonable. If you are looking for an attractively priced utility stock with a good dividend yield, NRG should be on your radar.

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2. American Electric Power (NYSE: AEP)

AEP is another good utility stock that you can consider in November. The company has around 5.5 million customers in the US and sold around 181 million megawatt-hours of electricity last year. The company has a generation capacity of around 30,000 MW and owns around 40,000 miles of transmission lines. It reported revenues of $14.9 billion last year while its operating earnings were $2.1 billion during the year.

Jim Cramer finds AEP a good utility stock to buy

Earlier this year, Jim Cramer listed AEP as among the best high dividend stocks in the utility industry. Currently, the stock has a dividend yield of 3.7%. Of the 11 analysts covering the stock, six rate it as a buy while four rate it as a hold. One analyst rates AEP as a sell or some equivalent. Its median target price of $44 is a premium of 18.1% over current prices.

AEP stock trades at an NTM PE multiple of 17x, which is slightly below its average trading multiples over the last five years. AEP looks like another high dividend-paying utility stock that you can consider in November 2021. Notably, Bank of America sees AEP as among the beneficiaries of the bipartisan infrastructure act that finally got passed earlier this month.

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3. Evergy (NYSE: EVRG)

Evergy looks like another good utility stock to buy in November. While some of the utility stocks have struggled this year, EVRG stock is up over 18%. While it is still underperforming the S&P 500, the stock is outperforming utility peers.

Evergy serves 1.6 million customers in Kansas and Missouri through its operating subsidiaries, KCP&L and Westar. The company generates energy through a mix of renewable and non-renewable energy and generates half of its electricity through emission-free sources.

Like many other utility companies, Evergy is also pivoting towards renewable energy. It has been working towards retiring the fossil fuel power generation capacity and intends to achieve net-zero carbon emissions by 2045. The stock’s dividend yield also looks attractive at 3.5%.

Evergy has a median target price of $69 which is a premium of only about 5.3% over current prices. Of the 10 analysts covering the stock, six rate it as a buy while three rate it as a hold. One analyst has a sell rating on the stock.

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4. 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. It has acquired 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.

Wall Street is not too bullish on AWK utility stock though

Wall Street analysts are meanwhile not too bullish on AWK stock and its median target price of $174.50 is similar to current prices. 11 of the 16 analysts covering the stock have given it a hold rating while three analysts have a buy rating. The remaining two analysts have a sell rating.

That said, AWK looks among the best utility stocks to buy and play the infrastructure investments.

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5. The iShares U.S. Utilities ETF (NYSE: IDU)

If you want diversified exposure to utility stocks, you can do so through an ETF that invests in utility stocks. The iShares U.S. Utilities ETF is a good option to get diversified exposure to utility stocks.

IDU is a good way to invest in utility stocks

IDU has a total of 43 holdings and the blended average price-to-book ratio for the fund is 2.41%. The ETF has a trailing 12 months yield of 2.6% and makes distributions quarterly. The ETF has an annual expense ratio of 0.41%. NextEra Energy is the biggest holding for the ETF with a weightage of 14.8%. Duke Energy Group is the second-largest holding with a 6.7% weight while Waste Management Inc is the third-largest holding with just over a 6% weightage.

ETFs can be a good investing strategy especially for investors who lack the time or analytical skills to pick individual stocks. The charges in an ETF are much lower than active funds, which is among the prime reasons for their popularity. Notably, Berkshire Hathaway chairman and legendary value investor Warren Buffett also advises investors to allocate funds towards index funds and ETFs. Even Berkshire has invested some money in S&P 500 ETFs.

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