3 Top High-Yield Utility Stocks to Buy in September

The utilities sector tends to be sensitive to interest rates because utilities generally use leverage. With Wall Street expecting rates to fall, utility stocks have started to rise. This has reduced the dividend yield for some of these utility stocks.

But don’t transfer the sector if you’re looking for yield. There are still some attractive dividend options. The list includes Brookfield Renewables (BEP -2.45%) (BEPC -2.88%), The Black Hills (BKH -0.78%)and WEC Energy (WEC -1.09%).

Here’s a brief explanation of why these three high-yielding utility stocks could make great buys this September.

1. Brookfield Renewable offers two ways to play

Brookfield Renewable originates from Canada and is backed by investment power Brookfield Asset Management (BAM -0.97%). Essentially, it’s a way for Brookfield Asset Management to raise additional capital for investments in the clean energy sector. However, Brookfield Renewable also enables smaller investors to invest alongside one of the world’s largest and most experienced infrastructure investors. Brookfield Renewable’s portfolio spans the globe (North America, South America, Europe and Asia) and all major clean energy technologies (hydro, solar, wind and storage).

What’s interesting here is that Brookfield Renewable has two classes of stock. There is the partnership unit with a distribution yield of 5.8% (BEP) and the corporate share class with a dividend yield of about 5% (BEPC). They represent the same entity; the difference in yield is based on the demand for the corporate share class, which more investors are comfortable buying (some large investors, such as pension funds, cannot buy partnerships). The dividend that supports this yield has grown annually by about 6% per year since 2001.

A high yield, a generous distribution growth rate and a long growth track as clean energy becomes more and more important to the global energy pie. What doesn’t he like?

2. Black Hills is small but mighty

Black Hills is more of a traditional utility, providing regulated natural gas and electric service to 1.3 million customers in eight states. The stock is yielding about 4.4%, which is at the upper end of the stock’s return range over the past decade. From this perspective, it appears that the utility is for sale. However, the average utility has returns of around 3%, using Utilities Select Sector SPDR ETF (XLU -0.95%) as an industry proxy, so Black Hills also looks cheap compared to its peers.

The really interesting thing here, though, is that this relatively small regulated utility (its market cap is about $4 billion) happens to have one of the best dividend records in the utility sector. Black Hills has increased its dividend annually for over five decades, making it an elite high dividend king. Dividend growth of around 5% per year over the past decade or so isn’t too bad either. And all this from what is basically a very boring company. If you’re looking for a utility that you can put on autopilot, Black Hills is one to look at today.

3. WEC Energy: Dividend Growth and Income

Last up is WEC Energy, which has the lowest yield of the three at around 3.6%. Don’t dismiss it out of hand, that’s way more than average utility though. And the dividend has grown 7% per year over the past decade. The most recent increase, in January, was 7%. The company expects earnings to grow between 6.5% and 7% per year through at least 2028. The dividend is likely to grow at roughly the same rate as earnings.

This is an excellent combination of yield and dividend growth for investors looking for low-yield utility stocks focused on dividend growth, such as NextEra Energy (which has a below average yield of 2.5%). WEC Energy is a simple, boring regulated electric and natural gas utility (NextEra combines a regulated utility with a clean energy business) that operates in parts of Wisconsin, Illinois, Michigan and Minnesota with 4.7 million customers. The yield may be a little low for some dividend investors, but if you’re interested in killing two birds with one stone, this dividend growth machine (it’s raised its annual dividend for 20 years) should be on your radar your.

If you look hard enough, you will find it

There’s no doubt that the utilities sector has started to recover in price, but that doesn’t mean the opportunity to find good dividend stocks is over. You just have to be more selective. Brookfield Renewable, Black Hills, and WEC Energy are all examples of strong, high-yield dividend stocks you can find if you take the time to explore.