3 high-yielding stocks to buy in this boring sector

Utility companies run very boring businesses. It distributes electricity and natural gas to customers under government-regulated tariff structures. There aren’t many advantages in this business (demand and prices are relatively constant), but there aren’t many disadvantages either. Because of this, utilities generate fairly stable earnings, much of which comes from high-yielding dividend payments.

Investors looking to add stability to their portfolio should consider buying boring utility stocks. Black Hills (NYSE: BKH), Consolidated Edison (NYSE:ED)AND Duke energy (NYSE:DUK) stand out to several Fool.com writers as a great option for those looking for a high-yielding and sustainable dividend stock.

Black Hills is the mouse that roared

Reuben Gregg Brewer (Black Hills): When it comes to utility stocks, Black Hills, which has a market capitalization of $3.9 billion, often flies under the radar screen. That’s a shame, because the regulated natural gas and electric utility is a dividend king, with a track record of 54 consecutive years of annual dividend increases. The average dividend growth over the last three, five and 10 years is around 5%, which shows incredible consistency. Meanwhile, the yield is currently around 4.5%, which is at the high end of the yield range over the last decade.

In other words, Black Hills looks like a dividend king put up for sale. There is a good reason for this, however, because running a utility is a capital-intensive endeavor. A sharp increase in interest rates will increase costs for Black Hills in the future. There’s no way around this, also noting that the tool tends to use more leverage than some of its larger competitors.

That said, Black Hills’ customer growth has increased to nearly three times the U.S. population growth rate. It operates in very attractive markets in Arkansas, Colorado, Iowa, Kansas, Montana, Nebraska, South Dakota and Wyoming. This suggests that regulators will adjust the company’s rate structure over time to reflect changes in interest rates. If you have the patience to wait for this to happen, you can collect a historically high dividend yield from a rather boring Dividend King company.

The king of consistency

Matt DiLallo (Consolidated Edison): Consolidated Edison supplies electricity and natural gas to customers in the New York metro area. Even though utilities are boring businesses, they generate Very predictable cash flow backed by consistent demand and government-regulated interest rate structures. This is what Consolidated Edison provides stable income for dividend payments and investments in the maintenance and expansion of utility infrastructure.

The story continues

The tool hit the head dividend milestone earlier this year. The company delivered its 50th consecutive annual dividend increase. This is the longest period of consecutive dividend increases among listed companies S&P500. It also introduced the company to an elite group Dividend kings. Edison’s consolidated enhanced payout currently yields just under 3.5%, which is more than double the S&P 500’s dividend yield (about 1.3% based on dividends paid last year).

Although the company expects it continues to increase its dividend, growth will likely be moderate. Consolidated Edison plans to focus on: Dividend rate 55-65% of adjusted earnings to finance higher levels of investment in the clean energy transition. This is down from the previous target of 60% to 70%. It plans to keep most of its profits to finance growth internally. This strategy should enable Consolidated Edison to grow earnings per share faster in the future. This allows it to potentially generate higher total returns by adding dividend income to the share price appreciation it should achieve as earnings grow.

Edison’s consolidated dividend should become more sustainable in the long term as it lowers its payout ratio and invests in supporting the clean energy transition. These features make it an attractive option for those looking for one Very bankable source of income.

Narrowing the focus of this tool should bring big benefits

Neha Chamaria (Prince Energy): Duke Energy is one of the largest regulated utilities in the U.S., operating in growth locations such as Florida and the Carolinas, among others. In fact, the company sold its unregulated commercial renewable energy business in 2023 for $2.8 billion and became a fully regulated utility. The company said it would use net proceeds from the sale of about $1.1 billion to reduce debt and strengthen its balance sheet.

2023 was also a good year for Duke Energy as the company added the highest number of customers in its history and increased its five-year capital investment plan to $73 billion to accelerate the transition to clean energy. The energy giant is aiming for net zero carbon emissions from power generation by 2050, so it has planned massive investments in the coming years to modernize its power grid and expand energy storage, renewables, natural gas and nuclear power.

With a fully regulated portfolio of assets in emerging jurisdictions, Duke Energy expects adjusted earnings per share to grow 5% to 7% through 2028. Combined with a 4% dividend yield, management believes investors in Duke Energy could earn a profit almost 10% annual rate of return. Duke Energy is also a bankable dividend stock. It has paid a dividend every quarter for 98 years and has increased it over time. So far, dividend growth has boosted shareholder returns enormously. Over the last 10 years, Duke Energy stock has raised more than twice as much investor money after dividends.

With Duke Energy now fully focusing on regulated businesses and strengthening its balance sheet, income investors have a solid reason to consider this boring utility company

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Matt DiLallo has no position in any of the companies mentioned. Neha Chamaria has no position in any of the companies mentioned. Reuben Gregg Brewer has positions in the Black Hills. The Motley Fool recommends Duke Energy. The Motley Fool has a disclosure policy.

“3 High-Yield Stocks to Buy in This Boring Sector” was originally published by The Motley Fool