3 high yielding energy stocks you can hold for the rest of your life

Utility stocks are often overlooked. Most consumers don’t know many of them; their only interaction with a utility is when they pay their monthly water, gas or electricity bill.

But utilities tend to be great dividend-paying stocks due to the constant and often regulated nature of the industry. They can pay shareholders passive income that grows every year, making utilities substantial additions to any long-term diversified portfolio.

Here are three utility stocks that have proven to be resilient dividend stocks over the years.

Why are utilities good dividend stocks?

Utilities distribute essential resources such as water, electricity and gas to homes and businesses. Anyone who lives in their own house or apartment knows that paying their utility bills is as essential as shopping for groceries. Utilities generally don’t have to worry about getting paid, regardless of the economy.

Governing bodies and utilities agree on tariff and price hikes in return for commitments to invest in upgrading or maintaining utility infrastructure like pipes, meters, etc. Unregulated utilities will use long-term contracts, providing similar stability to the business.

Most utility stocks grow slowly and steadily, but even if their price appreciation doesn’t lead your portfolio, they tend to pay large dividends that can produce strong total returns. In other words, utilities can give you the best of both worlds.

1. Consolidated Edison

Energy distribution company Consolidated Edison (ED 1.78%) operates utilities providing electricity, gas and steam to approximately 10 million people in the New York and Westchester areas. The Company also operates a green energy segment and transmission business, including electricity and gas pipelines.

Consolidated Edison is one of the most accomplished dividend stocks in the utilities industry. the company is already a Dividend Aristocrat and, with 48 consecutive payout increases, will soon be a Dividend King. Investors can enjoy a 3.3% return at the current share price.

ED Revenue Data (TTM) by YCharts.

Over the next two years, the company plans to invest $15.7 billion, primarily in its utility business. It plans to sell its clean energy portfolio for around $4 billion to help fund the investments. These investments will lead to requests for rate hikes from regulators, which should drive the company’s growth over the next few years.

2. UGI Corporation

International energy distributor IGU Corporation (UGI 0.51%) owns a collection of businesses, including natural gas and electric utilities, midstream energy operations, the largest propane distribution business in the United States, and liquid petroleum distribution in Europe.

UGI is not in the S&P500, so he can’t be called a dividend aristocrat, but his 35 consecutive years of dividend growth speaks volumes about the company’s long-term success story. The stock offers a dividend yield of nearly 3.5%, and management’s long-term goal is to increase the payout by an average of 4% each year.

UGI Income Table (TTM).

UGI Revenue (TTM) data by YCharts.

The company’s propane business in the United States generated net income of $138 million in the second quarter of 2022, making it UGI’s largest reporting business segment by earnings. However, the business is influenced by the amount of gas people use, which can fluctuate with gas prices or weather each year, so the segment can be volatile at times. UGI’s utility business helps add some stability to the overall business, making it easier to count on the dividend. Additionally, management takes a conservative approach to payout, devoting only 19% of the company’s net income to dividends.

3. Black Hills Society

A company dedicated to public services, Black Hills Society (BKH 1.52%) distributes gas and electricity to 1.3 million people in eight Midwestern states. You can see below how smooth the company’s gross profit growth has been over the past decade, a result of being a pure utility company versus mixed models like Consolidated Edison and UGI.

Most investors probably won’t be familiar with an obscure company like Black Hills, but the company has delivered on its promise, raising its dividend for 52 years. The stock has a dividend yield of 3.2% and management is targeting a 5% annual growth rate and a 50%-60% payout ratio for the dividend, making it a slow and steady payout on which investors can rely on.

BKH Gross Profit Chart (TTM)

BKH Gross Profit (TTM) Data by YCharts

The company seems ready to keep delivering; management expects annual earnings per share (EPS) growth of 5% to 7% through 2026 based on capital spending and expected rate hikes. The company’s financial discipline makes the Black Hills a likely candidate to continue increasing its payouts in the future.

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