These 3 Utility Stocks Offer High Yields, Recession-Proof Dividends

Utility stocks are among the safest stocks in the entire stock market during a recession, and many agree we’re either in one, or headed there. Utilities also provide stable dividends, even when the economy enters a downturn.

Put simply, people cannot go without electricity and gas, even during recessions. As a result, these 3 high dividend stocks from the utility sector could be safe havens during a prolonged downturn.

Consolidate With Edison

ConEd (ED) delivers electricity, natural gas, and steam to its customers in New York City and Westchester County. The company has annual revenues of nearly $14 billion.

Consolidated Edison in early May revealed first-quarter results, showing revenue grew 10.3% to $4.1 billion, beating estimates by $350 million. Adjusted earnings of $522 million, or $1.47 per share, compared to adjusted earnings of $491 million, or $1.44 per share, in the previous year. Adjusted earnings per share was $0.01 lower than expected.

Higher rate bases for gas and electric customers added $0.08 to the company’s New York operations, while recovery of late payments added $0.04. Higher revenues in company’s clean energy business added $0.08 to results. Consolidated Edison expects capital investments of nearly $16 billion for the 2022 to 2024 time period, with $4.7 billion targeted for green energy projects, such as smart systems and electric vehicles.

Consolidated Edison confirmed its prior guidance for 2022 as well. The company expects adjusted earnings-per-share of $4.40 to $4.60 for the year. This would be a 2.5% increase from the prior year. The company also expects a five-year earnings growth of 5% to 7%.

Consolidated Edison has grown its EPS at a 1.4% average annual rate during the last decade. Despite company guidance for higher growth, we reaffirm our estimate of 3.5% annualized earnings-per-share growth for 2022 to 2027.

ConEd is resilient during recessions. In the Great Recession, when most companies saw their earnings collapse, earnings for Consolidated Edison fell just 3% in 2008 and 7% in 2009, and it took only one year to return to the pre-crisis level.

Shares currently yield 3.4%. The company has increased its dividend for over 40 consecutive years, placing it on the exclusive Dividend Aristocrats list. With a 2022 payout ratio expected in the 70% range, ConEd’s dividend is safe.

Head to Southern Company

Southern Company (SO) is a major energy utility that serves ~9 million customers in the U.S. via its subsidiaries. Southern is one of the most resilient companies to the pandemic. In fact, the company has greatly benefited from the record-low interest rates that have resulted from the pandemic. Due to cost overruns and its acquisition of AGL Resources for $12 billion in 2016, Southern has almost doubled its net debt in the last six years.

In late April, Southern reported financial results for the first quarter of fiscal 2022, revealing revenue grew 12.5% over last year’s quarter, thanks to rate hikes and strong customer growth. But these benefits were offset by high operational and maintenance costs and thus EPS slipped by 1%, from $0.98 to $0.97. Southern has missed analysts’ EPS estimates only once in the last 21 quarters and reaffirmed its guidance for adjusted EPS of $3.50-$3.60 in 2022.

Southern recently raised its dividend by 3%. It has now raised its dividend for 21 consecutive years and has not cut the dividend for 75 consecutive years. It currently offers a 3.8% dividend yield.

Southern is attractive for its resilience during recessions. In the Great Recession, when most companies saw their earnings collapse, the EPS of Southern fell just 1.3%. In the downturn caused by the pandemic, Southern has grown its earnings thanks to its resilient business model.

A Noble Choice: Duke Energy

Duke Energy (DUK) is one of the largest providers of energy in the U.S. Today, it produces about $26 billion in annual revenue and trades with a market capitalization of $83.8 billion.

Duke Energy on May 9 reported first-quarter earnings. Adjusted earnings per share stood at $1.30, up from $1.26 per share in the year-ago period. Net income decreased from $953 million to $818 million year-over-year while total operation expenses increased 24.6% to $5.86 billion year-over-year. The company also reported $723 million of electric utility and infrastructure division segment income, down by 12% from $820 million in the year-ago period.

Meanwhile, gas utilities and infrastructure segment income stood at $254 million, while commercial renewables segment income stood at $11 million.

Finally, Duke Energy reaffirmed its 2022 adjusted EPS guidance of $5.30 to $5.60 and long-term adjusted earnings per share growth rate of 5% to 7% through 2026. Duke’s earnings-per-share have increased at an annual rate of 4% over the last decade, and we expect to see Duke continuing to generate 4.8% annualized earnings-per-share growth over the next half decade as we expect management to deliver earnings-per-share above guidance for 2022.

Duke, like any other power provider, must ask for rate increases from local authorities so they are certainly not assured. However, state regulators have been amicable to rate increase requests from Duke and should continue to be moving forward.

The company’s quality metrics have been largely stable throughout the past decade and we do not expect that will change. We expect margins to be flat moving forward — albeit at very high levels — and for its balance sheet leverage and interest coverage to remain steady.

Duke’s competitive advantage is its near monopoly in the areas it serves, which is not dissimilar to other regulated utilities. The stock has a 3.7% current dividend yield, and the company has increased its dividend each year for over a decade. With a 2022 expected payout ratio of 72%, the dividend appears safe.