Molly Ayala
Electric utility companies are publicly traded companies that are regulated by government agencies. They generate revenue by providing energy to customers. Due to the high costs of building and maintaining electricity-generating infrastructure, these companies are often given a monopoly to operate in a specific region. As a result, they offer predictable revenue streams and lower-risk investments. Electric utility stocks also typically pay investors dividends, which are cash payments of a portion of the company's profits. When considering how to buy stock in electric companies, investors should look for companies with strong earnings growth records and market outperformance. Additionally, with the increasing focus on clean energy and electric cars, some analysts predict that utility companies will become a growth sector over time.
| Characteristics | Values |
|---|---|
| Investment options | Energy exchange-traded funds (ETFs), stocks of individual companies in the energy sector, or stocks of companies in the electric vehicle (EV) market |
| Company examples | Duke Energy, NextEra Energy, Portland General Electric, FirstEnergy, Ferrari, ChargePoint, EVgo, Blink Charging, Wallbox, Hyliion, Romeo Power, QuantumScape, Global X Lithium and Battery Technology ETF |
| Company operations | Generation, transmission, and distribution of electricity; provision of electric and natural gas services; research, development, and manufacture of technology for turning ocean and sea waves into electricity; battery storage; electric vehicle (EV) charging networks |
| Investor considerations | Financial strength, dividend payout ratios, growth opportunities, rates of return, market volatility, company earnings growth, and market outperformance |
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What You'll Learn
Electric utility stocks to buy now
If you're looking to buy stock in electric companies, there are a few things to keep in mind. Firstly, electric utility stocks are publicly traded companies that are regulated by government agencies and provide reliable energy to customers. These companies are often given a monopoly by the government to operate in a specific region, which helps them generate predictable revenue, making them attractive lower-risk investments. Electric utility stocks also typically pay investors dividends, which is a cash payment of a portion of the company's profits. Utilities generally offer an above-average dividend yield, making them attractive income investments, especially for retirees.
When considering which electric utility stocks to buy, investors should look for companies with financial strength, indicated by lower-than-average dividend payout ratios. This allows companies to retain more cash to finance growth and enhance their financial strength. Additionally, investors can look for companies that are investing in renewable energy projects and taking advantage of tax credits and incentives, as these initiatives can increase their earnings.
- Duke Energy (DUK): A regulated electric and natural gas utility serving customers in seven states. It offers a predictable revenue stream and a stable investment opportunity.
- NextEra Energy (NEE): An energy holding company operating in Florida, with a focus on renewable energy businesses.
- Edison International: The parent company of Southern California Edison, currently undervalued and trading below the estimated fair value.
- Portland General Electric: Essential Utilities, the parent company, provides rate-regulated electric, gas, and water distribution services. It is currently trading at a discount to the estimated fair value.
- PG&E: This company has strong backing from state regulators and politicians for its investments in grid modernization, electric vehicles, and renewable energy. It is also trading at a discount to the estimated fair value.
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Energy ETFs
There are a variety of energy ETFs to choose from, some offering exposure to domestic or global energy companies, while others focus on specific subsectors. For example, upstream energy ETFs target exploration and production firms, midstream ETFs specialize in pipeline operators, and master limited partnerships (MLPs), and downstream ETFs invest in refining and distribution companies.
IXC is a good option for those seeking a global emphasis on large-cap energy. Unlike XLE and VDE, IXC includes international firms like Shell PLC, BP PLC, and TotalEnergies SE, as well as Canadian firms like Enbridge Inc. and Canadian Natural Resources Ltd. It charges a 0.41% expense ratio, which is slightly higher than other ETFs, and it can be more volatile.
XLE is the dominant energy ETF, with over $33 billion in assets under management and a highly liquid 0.01% 30-day median bid-ask spread. It tracks the Energy Select Sector Index and focuses on large-cap energy stocks in the S&P 500, with Exxon Mobil Corp. and Chevron Corp. as its top holdings. XLE has a lower expense ratio of 0.08%, making it a more cost-efficient option.
It's important to remember that while ETFs offer diversification and stability, they are not without risk, and their value can fluctuate.
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Electric vehicle stocks
Electric vehicle (EV) stocks include electric vehicle manufacturers, electric battery producers, and companies that make charging stations and electric motors. In a broader sense, electric vehicle stocks may also include mining companies and semiconductor companies that produce key EV components.
If you're looking to add EV stocks to your portfolio, you'll need a brokerage account to purchase them. Setting up an account is relatively easy and takes about 15 minutes. Once you fund an account, you can research EV stocks and invest directly from your brokerage account.
- Tesla (TSLA): Despite the divisive and sometimes oddball behavior of its CEO, Elon Musk, Tesla is a force in the global EV industry. The company has a huge chunk of the marketplace, with predictions of nearly 1.8 million vehicle deliveries across 2024.
- BYD: This Chinese firm is actually the top electric vehicle manufacturer in the world. BYD has produced more than 8 million EVs in the last few years and is currently selling more than 500,000 "new energy vehicles" per month.
- VWAGY: While EVs are a modest share of VW's total output, the company's overall scale makes its EV output significant. In the first three quarters of 2024, the firm reported battery-electric vehicles (not hybrids) topped 500,000 units, putting it on pace for nearly 700,000 vehicles for the full year. VW also has goals of fully electrifying its fleet by 2030.
- Li Auto: Although much smaller than other firms and currently losing money as it invests in growth, Li Auto is a top EV stock to watch because of its tremendous growth path.
- ChargePoint (CHPT): This company is the largest electric vehicle charging company in the United States, with more charging ports and locations than any other network.
- Fisker (FSR), Canoo (GOEV), Faraday Future (FFIE), Lordstown (RIDE), and Xos (XOS): These EV startups are among the most attractive electric vehicle stocks, according to experts. However, most of them are not yet producing or delivering electric vehicles. An exception is Lucid Motors (LCID), which began deliveries of the Lucid Air luxury electric sedan in October 2024.
- Indian EV Stocks: India aims to have 30% of its vehicles electrified by 2030, which could reshape the automotive landscape. Some of the top EV stocks in India include Tata Motors Ltd, KPIT Technologies Ltd, and Hero MotoCorp Ltd.
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Energy sector stocks
The energy sector can be divided into two main categories: renewable energy and non-renewable energy. Companies in the non-renewable energy sector include oil and gas companies, oilfield services and equipment companies, pipeline operators, and companies that mine thermal coal and uranium. Some examples of these companies are BP, ExxonMobil, Royal Dutch Shell, and China Shenhua Energy.
On the other hand, companies in the renewable energy sector focus on manufacturing components to produce electricity using solar, wind, hydroelectric, and geothermal power. They also include companies that operate and develop renewable energy-generating facilities. Examples of renewable energy stocks include solar energy stocks, wind energy stocks, and hydrogen stocks.
When investing in energy stocks, it is important to keep in mind the risks and not allocate too much of a portfolio to a single energy stock or the entire industry. Investors should focus on companies with strong financial and operational strength, such as low-risk business models, diversified operations, low production costs, and stable revenue.
Some specific energy stocks that stand out include:
- Chevron (NYSE:CHX): A leading global energy company with integrated oil and gas operations.
- NextEra Energy (NEE): A holding company with one of the best financial profiles in the electric utility sector, featuring a high credit rating and a stable dividend payout ratio.
- Duke Energy (DUK): A regulated electric and natural gas utility serving customers in seven states.
- Vistra Corp: A holding company that provides electricity and power generation services.
- TXNM Energy, Inc: An investor-owned holding company providing electricity and electric services in New Mexico and Texas.
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Green energy stocks
When considering which green energy stocks to buy, it is important to keep in mind that not all companies will take full advantage of the clean energy sector's massive opportunity. Therefore, investors should look for companies with strong balance sheets and a solar energy-focused growth profile.
Some of the top-performing green energy stocks include:
- NextEra Energy Inc. (NEE) - One of the world's largest producers of wind and solar energy, NextEra also has ambitious plans to eliminate carbon emissions from its operations by 2045.
- Brookfield Renewable Partners L.P. (BEP) - With a focus on renewable energy development, Brookfield expects to deliver more than 10% annual FFO per share growth over the next decade.
- Clearway Energy Inc. (CWEN) - One of the largest owners of renewable energy-generating facilities in the US, Clearway has a wind, solar, and natural gas-powered portfolio.
- Ormat Technologies, Inc. (ORA)
- Sunnova Energy International Inc. (NOVA)
- Hannon Armstrong Sustainable Infrastructure Capital Inc. (HASI)
- First Solar Inc. (FSLR)
- Sunrun Inc. (RUN)
If buying individual utility stocks seems too risky, investors can consider energy exchange-traded funds (ETFs). These funds are baskets of stocks and other investments that provide instant diversification. However, it is important to remember that while ETFs are more diversified than individual stocks, they still carry risk and their value can fluctuate.
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Frequently asked questions
Electric utility stocks are publicly traded companies regulated by government agencies. They make money by providing reliable energy to customers.
Electric utility stocks can act as a stabilizing and income-generating force within your portfolio. They are less volatile and more dependable, especially during difficult times. They also pay investors a dividend, which is a cash payment of a portion of the company's profit.
Some examples of electric utility stocks include:
- FirstEnergy
- Portland General Electric
- PG&E
- NextEra Energy
- Duke Energy
To buy any stocks, you'll need to open an investment account. You can then choose from different avenues for trading energy and related instruments. For instance, you can invest in electric utility stocks through the stock market via listed companies operating in the energy sector.
Investors should focus on electric utilities with lower-than-average dividend payout ratios. The lower ratios allow companies to retain more cash to finance growth, which enhances their financial strength. It is also important to consider the company's climate risk and impact.
