safe utility stocks

3 Safe Utility Stocks with Excellent Yields

Utility stocks offer a safe haven when the stock market enters a downturn. They tend to be less volatile than the broader market. In addition, utility stocks pay quarterly dividends to shareholders and can raise them yearly, even during recessions. This is because demand for utility services holds up well, even when the economy enters a downturn.

 This article will discuss 3 utility stocks that offer above-average dividend yields and safe payouts.


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3 Safe Utility Stocks with Excellent Yields

Southern Company (SO)

The Southern Company is a diversified energy utility that serves about 9 million customers in the United States via its subsidiaries. The company has increased its dividend for 22 consecutive years, placing it on the Dividend Contender 2023 list.

Mild weather and rising interest expense have weighed on Southern to start 2023. In the 2023 second quarter, revenue declined 20% over the prior year’s quarter, and earnings per share decreased 26%, from $1.07 to $0.79. On the bright side, Southern started up its Vogtle Unit 3, the first new nuclear facility built in the U.S. in a generation, in early August. 

Southern has missed analysts’ estimates only twice in the last 26 quarters. Management reaffirmed its guidance for earnings per share of $3.55 to $3.65 in 2023 and $3.95 to $4.10 in 2024. The dividend payout ratio is expected to be approximately 77% for 2023.

Growth and Dividend

Southern has grown its earnings per share at a 2.3% annual rate in the last decade. We expect 5% annual EPS growth over the next five years, which should easily result in continued dividend increases yearly.

The competitive advantage of Southern is its state-regulated business because it requires excessive capital expenses for infrastructure and poses high barriers to entry to potential competitors. The firm is also known for its resilience during recessions. Even during severe downturns such as the Great Recession and the coronavirus pandemic, Southern has grown its earnings over time thanks to its resilient business model and rate hikes.

Southern hiked its dividend by 3.0% this year and, according to Portfolio Insight’s Divided Radar, has increased it for 22 straight years. It has not cut its dividend for 76 consecutive years. The utility currently has a 4.3% dividend yield.

Portfolio Insight - Dividend Growth SO
Source: Portfolio Insight*

American Electric Power (AEP)

American Electric Power was founded in 1906 and is our second stock on the list of 3 safe utility stocks with excellent yields. It is one of the biggest regulated utilities in America and offers electricity generation, transmission, and distribution services in 11 states. The firm generates electricity from coal, natural gas, renewables, nuclear, and demand response. 

On July 27th, American Electric Power reported Q2 results. AEP’s net income declined fractionally to $1.01 per share from $1.02 in the same quarter last year. Revenues also fell by 4% year-over-year to $4.4 billion, mainly due to mild weather and financial stress from inflation impacting electricity demand in several states. 

The company has agreed to sell its stakes in the Prairie Wind Transmission project in Kansas and the Pioneer Transmission project in Indiana while continuing the strategic review of the Transource Energy joint venture. American Electric Power reiterated its FY 2023 operating earnings forecast to be $5.19 to $5.39 per share.

Growth and Dividend

One of AEP’s primary growth drivers moving forward will be its ambitious plans for its renewable power business, as it plans to install 3.9 GW of solar and 4.4 GW of wind power by 2030. A significant sign of its intent to become a major player in the renewable space was its acquisition of Sempra Energy’s renewable business, which includes joint ownership of seven wind farms and one battery installation. 

This deal, combined with the Santa Rita wind project in Texas, will nearly quadruple AEP’s renewable portfolio from its current size, with plans to grow it by another four times its pro rata size, almost 16 times its current size by 2030. The other primary growth driver for the company will be its transmission business. Given its large footprint and execution experience, AEP should be well-positioned to capitalize on the aging infrastructure in this space and grow considerably.

American Electric Power has increased its dividend for 18 consecutive years, making it a Dividend Contender. The 2023 calculated dividend payout ratio is 63%, which means the company’s underlying earnings strongly protect the dividend. Shares currently yield 4.5%.

Portfolio Insight - Dividend Yield History AEP
Source: Portfolio Insight*


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Duke Energy (DUK)

Duke Energy began operations in 1904 by providing power to a South Carolina cotton mill. It is the third stock on our list of 3 safe utility stocks with excellent yields. Since then, it has grown organically and through mergers to become one of the largest energy providers in the United States. 

Duke Energy released its second-quarter financial results on August 8th. The reported Q2 Non-GAAP EPS was $0.91, falling short by $0.07. However, the company’s revenue of $6.58 billion, though down 1.6% year-over-year, surpassed expectations by $20 million.

Duke Energy reaffirmed its adjusted 2023 EPS guidance range of $5.55 to $5.75 and its long-term adjusted EPS growth rate between 5% and 7% through 2027, based on the 2023 midpoint of $5.65. The CEO emphasized the company’s robust business fundamentals and commitment to achieving a 5% to 7% long-term EPS growth through 2027, driven by investments to meet the increasing demand for affordable and reliable clean energy.

Growth and Dividend

Duke’s earnings per share have grown at an annualized rate of 4% in the past decade. We expect to see Duke continuing to generate 4.6% annualized earnings per share growth over the next half-decade from the high base for 2023. The key determiners of Duke’s value proposition to investors will be how well they can execute their ambitious $37 billion growth CapEx plan and if they can continue to garner favorable regulatory rulings in their operating regions.

Customer growth should continue as a low-single-digit tailwind for the foreseeable future, providing Duke with a higher base demand for its services. In addition, rate increases should help boost revenue and earnings. Management has a plan to reduce leverage moving forward to boost cash flow. 

Duke Energy possesses a dividend payout ratio of approximately 72% for 2023, indicating the dividend is well-covered. Duke’s competitive advantage is its near monopoly in the areas it serves, which is not dissimilar to other regulated utilities. 

The company has increased its dividend for 12 years in a row. Duke Energy shares have a forward dividend yield of 4.7%.

Portfolio Insight - P_E Fair Value (Non-GAAP EPS) DUK
Source: Portfolio Insight*

Disclosure: No positions in any stocks mentioned

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Bob Ciura
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Bob Ciura is President of Content at Sure Dividend. Bob has worked at Sure Dividend since October 2016. He oversees all content for Sure Dividend and its partner sites. Prior to joining Sure Dividend, Bob was an independent equity analyst. Bob received a bachelor’s degree in Finance from DePaul University, and an MBA with a concentration in Investments from the University of Notre Dame.

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