Best Utility Stocks: My Top 3

Investment Thesis

NEE makes the bulk of its income from a flourishing state, Florida, through Florida Power & Light (FPL). Therefore, FPL should continue its steady growth. This state shows high allowed returns, fast and convenient regulators, along with low customer rates (lots of potential to hike rates in the future). The company benefits from a territorial monopoly and enjoys an economy of scale. NEE also counts on investments in clean and renewable energy through its wind and solar power plants. Those are the energy of the future and NEE has taken a step forward compared to many of its peers. NEE seems slightly undervalued, but the valuation model will work as long as NEE shows a high single-digit dividend growth rate.

Xcel Energy (XEL)

Xcel Energy manages utilities serving 3.7 million electric customers and 2.1 million natural gas customers in eight states. Its utilities are Northern States Power, which serves customers in Minnesota, North Dakota, South Dakota, Wisconsin, and Michigan; Public Service Company of Colorado; and Southwestern Public Service Company, which serves customers in Texas and New Mexico. It is one of the largest renewable energy providers in the U.S. with 28% of its electricity sales coming from renewable energy in 2019.

Investment Thesis

Utilities and stability could be used as synonyms. Xcel announced an investment of $18.4 billion in capital expenditures from 2017 to 2021. What I like the most about this news is the fact that 19% of it is dedicated to renewable energy. However, this gives additional cash flow to spend on clean energy projects. The Utility enjoys a favorable geographic position as Minnesota and Colorado are among the best wind resources of the U.S. Xcel Energy also estimates that approximately 10% of its rate base will come from renewables by 2021 (4% in 2016). This shift looks promising for growth.

Curious About Vistra Energy (VST)?

In the video below, I’ve covered more details about each of my picks and also review Vistra Energy, which was a demand from one of my YouTube subscribers. While it wouldn’t be part of my Top 3, I was pleased to discover this dividend stock and would definitely keep an eye on it to see how it evolves.

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