With interest rates on the rise, investors have been shifting away from income stocks and toward safer alternatives like CDs. That's opening up an opportunity for investors in the utility sector, which has been down and out of late. Near 52-week lows, Black Hills Corporation(NYSE: BKH), NextEra Energy(NYSE: NEE), and Duke Energy(NYSE: DUK) are three dividend stocks worth close looks today.
1. Black Hills is a Dividend King
Although Black Hills' stock is down 30% over the past year, that may be opening up an opportunity to buy a Dividend King utility on the relative cheap. Indeed, the 4.8% dividend yield here is near its highest levels over the past decade. To be fair, the company has pulled back on capital spending this year so it can focus on reducing leverage. That's a decision at least partly tied to rising rates, and it might lead to a brief slowdown in growth.
That said, there are a lot of things like about Black Hills. For starters, while small by utility standards (with a roughly $3.5 billion market cap), it operates in growing regions. To put a number on that, the utility estimates that its customer growth has been increasing nearly three times as fast as the average population growth in the United States. And while there has been a near-term slowdown in capital spending, the long-term outlook remains strong as the company continues to shift away from dirtier fuels (like coal) and more toward renewable power. All in all, Black Hills believes it can continue to grow earnings by 4% to 6% a year for the foreseeable future. That's not bad when you add in the historically high yield.
2. NextEra Energy is growing fast
NextEra Energy's shares are lower by a touch more than 30% over the past year. The dividend has been increased annually for 29 consecutive years, and the 3.2% dividend yield is near its highest levels in a decade. This utility is among the largest in the sector, with a huge $118 billion market cap. It is also one of the most unique.
That's because NextEra Energy is really two companies in one. The regulated utility piece of the puzzle, which includes Florida Power & Light, is a slow and steady business. But on top of that NextEra is rapidly expanding its footprint in the clean energy sector, where it is already one of the largest producers of solar and wind power in the world.
That makes this stock more of a dividend growth investment -- the dividend has been increased at a 10%+ clip over the past decade. That is exceptionally high for a utility. And there's plenty more growth ahead on the clean energy front, given that NextEra has 34 gigawatts of power production today, which it hopes to roughly double by the end of 2026.
3. Duke Energy is refocusing on regulated assets
Duke is a bit of an oddball here, because the stock is "only" down 14% or so over the past year. That's enough to put the stock near 52-week lows. But the story here is in many ways more positive. The yield is about 4.4%, and the dividend has been increased annually for 19 years.
Essentially, Duke is a large and boring utility (the market cap is around $70 billion) that is getting even more boring. That's because the company recently sold its contract clean energy business so it can refocus on just its regulated assets, including investing in building clean power for its own portfolio. Regulated investments have to be approved by the government, but they generally have more predictable financial returns. If buying a small company like Black Hills isn't something you want to do, then Duke will probably fit the bill for your portfolio if you are a conservative dividend investor.
Down but not out
Although Duke, NextEra, and Black Hills are all out of favor with investors right now, they provide something that is essential to modern life. Add in regulated monopolies and you can see why long-term investors might view the recent poor stock performances as buying opportunities.
NextEra is the best choice for dividend growth investors. Dividend King Black Hills is an attractive option if you favor stocks with long histories of annual dividend increases. And Duke is a slow and steady giant that has been working to increase the consistency of its performance by refocusing around regulated assets. All are near 52-week lows, and could be magnificent additions to your dividend portfolio.
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Reuben Gregg Brewer has positions in Black Hills. The Motley Fool has positions in and recommends NextEra Energy. The Motley Fool recommends Duke Energy. The Motley Fool has a disclosure policy.
