3 Top Utility Stocks to Buy in October

Normally, utility stocks are not very interesting. But after a magnificent 35% growth over the past year, well, the utilities sector is certainly exciting right now. In fact, some investors may think the sector is no longer worth looking at. This is not really true if you spend a little time examining utilities like Constellation Energy (CEG 2.94%), NextEra Energy (NO -1.41%)and The Black Hills (BKH -0.07%) as October begins.

1. Constellation Energy is leading the nuclear renaissance

Clean energy is all the rage, with investments in solar and wind growing rapidly. But there is another clean energy option that is often forgotten, nuclear power. Constellation Energy is a competitive energy company (meaning it sells electricity outside the traditional regulatory framework) with interests in 14 nuclear power plants containing 25 nuclear units. This is important because nuclear power is in the news, for good reason, right now.

A private company has just received government funding to reopen a closed nuclear power plant. Now, Constellation Energy has begun the process of reopening a nuclear power plant at Three Mile Island, with Microsoft (NASDAQ: MSFT) agreeing to buy all the power it produces for the next 20 years. To be fair, the stock rallied after management announced the news. But if nuclear power is on its way to becoming a more important energy source, Constellation Energy is probably one of the best ways to invest directly in the future of nuclear power. If you are interested in investing in popular trends, you should take a closer look at this utility immediately.

2. NextEra Energy is growing its dividend very quickly

NextEra Energy isn’t exactly a new story on Wall Street. In fact, the story behind this stock is so well known that the stock typically trades at a premium to peers. But if you’re a dividend growth investor, that premium might be worth paying. Why? Because NextEra Energy’s dividend has grown 10% annualized over the last one, three, five and 10-year periods.

The company estimates that earnings growth of 6% to 8% through 2027 will keep its dividend growth streak of 10% alive through at least 2026. Half that rate would be considered pretty good for a utility, so that NextEra Energy really stands out. .

The reason NextEra Energy has been able to grow so quickly is twofold. First, it owns Florida’s largest regulated utility, Florida Power & Light. This core business has benefited from the long trend of migration to the Sunshine State. More customers means more revenue and profits. On top of this solid core, NextEra Energy has built one of the largest solar and wind companies in the world. This is the growth engine and given the emerging shift to renewable energy, there is likely to be a long runway ahead for further growth.

If you have a value bias, you won’t like NextEra Energy. But it’s hard to beat when it comes to dividend growth.

3. Tiny Black Hills is a king when it comes to dividends

There’s a good chance you’ve at least heard the names Constellation Energy and NextEra Energy. But you might not have heard of Black Hills, which wouldn’t be shocking given its small market cap of $4 billion. However, if you’re a dividend investor trying to live off the income generated by your portfolio, you need to explore the Black Hills story.

It’s a pretty boring regulated natural gas and electric utility that serves 1.3 million customers in parts of Arkansas, Colorado, Iowa, Kansas, Montana, Nebraska, South Dakota and Wyoming. Notably, its customer base is growing nearly three times faster than the total US population. Black Hills expects this customer growth to support earnings growth between 4% and 6% per year for the foreseeable future. As a result, the dividend should increase with earnings over time.

This is where the story gets interesting, as Black Hills has increased its annual dividend for 54 consecutive years. This makes this little fry a Dividend King, one of the few utilities to achieve this impressive feat. Now add in a dividend yield of 4.2%, which is above the average of about 2.9% for the utilities sector and close to the highest level of stock returns in a decade.

Black Hills shares rose, as did other utility stocks. But it looks like this reliable dividend payer is for sale. If you rely on the income your portfolio generates, this boring Dividend King could be a great addition to your portfolio this October.

There are still interesting options in the utility patch

To be fair, the utility sector’s rally has reduced the sector’s attractiveness from an overall perspective. But that doesn’t mean there aren’t interesting opportunities if you dig a little deeper. Constellation Energy could be a big beneficiary of what appears to be a burgeoning nuclear renaissance, while NextEra Energy remains a dividend growth machine.

And Dividend King Black Hills is still adding years to its incredible dividend count, despite having a yield that’s attractive compared to the utilities sector and its own history. One of these unique stories is likely to tickle your fancy if you’re looking for a utility stock to buy right now.