Best Utility Stocks: My Top 3

Last but not least of this Utilities Series! I cover my Top 3 US Utilities. Again, one of the great upsides of utilities is the fact they’re mostly recession-proof. No matter what’s going on on the market, everybody needs power and water!

If you missed them, here are the previous posts that are part of this series:

American Water Works (AWK)

Founded in 1886, American Water Works is the largest investor-owned U.S. water and wastewater utility, serving approximately 3.5 million customers in 16 states. It provides water and wastewater services to residential, commercial, and industrial customers and operates predominantly in regulated markets, which account for about 90% of earnings. Its non-regulated market-based businesses provide complimentary water and wastewater services for military bases, municipalities, oil and gas exploration and production companies, and other industrial customers. The company has over 7,000 employees and generates about $3.7B in revenue.

Investment Thesis

The investment thesis in such a company is simple: you are buying shares of a monopoly selling an essential product with repetitive purchases. With a highly fragmented industry and the urgent need for massive investment in water connections, a leader with the size of AWK will find a way to grow its business. The company can grow through both acquisitions and rate improvements. Water needs will continue to increase as the population grows, and there are no substitutes for it. It is also a recession-proof business. Finally, AWK is a real money-making machine with constantly increasing cash flow. The only problem about AWK is that you will rarely find it at a discount and the stock only offers a ~1.50% yield.

NextEra Energy (NEE)

NextEra Energy’s regulated utility, Florida Power & Light, distributes power to roughly 5 million customers in Florida. Florida Power & Light contributes over 60% of the group’s operating earnings. Gulf Power also operates in Florida. The renewable energy segment generates and sells power throughout the United States and Canada. Consolidated generation capacity totals over 45 gigawatts and includes natural gas, the nuclear, wind, and solar assets.

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