What are the top utility shares to watch?

Why buy utility stocks?

Utility stocks are some of the most popular buy and hold stocks on the market. This is because utility stocks often offer high dividends, and they can outperform other sectors in times of economic uncertainty. Of course, past performance is no guarantee of future returns.

Utility companies supply the daily energy and water needs of a large proportion of the world’s population. Different utility companies provide electricity, gas and water – as well as being responsible for the maintenance of delivery systems and production hubs.

Because of this, utility stocks will always be in demand due to the societal need for energy and water, making the best utility stocks popular defensive choices. In market terms, they benefit from 'inelasticity of demand,' which essentially means consumer demand for their services remains constant regardless of economic conditions.

On the other hand, dependent on jurisdiction, utility companies can be restricted by legislation in how much they can charge customers. This makes sense when you consider some hold a monopoly over services in a specific geographical areas.

There are a number of different options available for producing and supplying this energy including renewables, nuclear power plants, hydro-electric and tidal power - and fossil fuels.

But in the last decade or so, many utility companies have made an effort to shift their means of production away from fossil fuels to greener alternatives, after increased consumer awareness about the need to transition to cleaner forms of energy.

Different utility companies perform different functions, so it’s important to establish some definitions for the types of utilities:

• Energy generating companies: utility companies that produce or supply energy and water to customers
• Energy network operating companies: utility companies that operate energy grids and are responsible for matching the supply of energy or water with the current demand in a given region
• Network maintenance companies: utility companies that are responsible for maintaining energy networks, wastewater networks or sewage works. These companies can also include installation as part of their services

Often, the three different definitions can apply to a single entity, but at other times a company might have chosen to specialise in one of the above – or created subsidiaries to diversify their offering.

How to trade or invest in utility stocks

Follow the steps below to place a trade on utility stocks:

1. Research the company you’d like to trade
2. Decide whether you’d like to invest or trade shares using CFDs
3. Create your account
4. Take steps to manage your risk
5. Open, monitor and close your position

Top 10 utility stocks to watch

The below list of utility stocks has been ranked in no particular order, but each company has significant holdings and operations in the utility sector:

1. Dominion Energy
2. FirstEnergy
3. PPL Corporation
4. NextEra
5. Électricité de France S.A. (EDF)
6. SSE
7. United Utilities
8. National Grid
9. British Gas
10. E.ON

Dominion Energy

Dominion is one of the largest utility companies in the US, operating in 15 states across the country. It’s headquartered in Richmond, Virginia, and it has a number of subsidiaries including the Gas Infrastructure Group, the Power Generation Group and the Power Delivery Group.

Dominion has a large focus on water, solar, wind, natural gas and biomass methods for generating electricity to meet the utility demands of its nearly 6 million customers. It reports that by 2050, the company will achieve net zero greenhouse gas emmissions across all its electric and natural gas operations.

In recent news, the company is going ahead with contruction of new offshore wind farms in the US, despite legal challenges.

Dominion Energy is listed on the New York Stock Exchange under the D ticker, and the company is a component of the Dow Jones Utility Average (DJUA) and S&P 500 indices.

FirstEnergy

FirstEnergy is an American utility company based in Ohio. The company controls one of the largest investor-owned electric systems in the US, with more than 24,000 miles of transmission lines across the country and a total generating capacity of over 3500 megawatts.

FirstEnergy is made up of ten different regulated distribution companies, which together serve over six million customers in the American Midwest and Mid-Atlantic regions. These companies include Ohio Edison, The Illuminating Company, Penn Power, Mon Power and Jersey Central Power and Light.

FirstEnergy is listed on the New York Stock Exchange under the FE ticker. Plus, it's a component of the DJUA and S&P 500.

PPL Corporation

PPL Corporation provides energy and utility services to over 2.5 million customers in the US. As with other utility companies on this list, PPL is committed to an increased use of renewable energy generation systems as part of their supply grid. To this end, the company has set a goal to achieve net-zero carbon emissions by 2050, and are targeting a 70% reduction from 2010 levels by 2035 and an 80% reduction by 2040.

PPL has approximately 83,000 miles of electricity and gas lines across the US, as well as a total energy generation capacity of about 7,500 megawatts. PPL is listed on the New York Stock Exchange under the PPL ticker and the company is an S&P 500 component.

NextEra Energy

Based in the US, NextEra is the largest utility company in the world by market capitalisation. NextEra generates more wind and solar energy than any other utility company, and in the last decade or so, the company has made a concerted shift toward renewable energy generation.

NextEra has a number of subsidiaries including Florida Power and Light, NextEra Energy Partners, NextEra Energy Resources and NextEra Energy Services. The largest of the subsidiaries, Florida Power and Light, supplies electricity to around 11 million people. It is also the biggest energy company in the US as measured by retail electricity produced and sold.

NextEra is listed on the New York Stock Exchange under the NEE ticker. The company is a component of the DJUA, the S&P 100 and the S&P 500 indices.

Électricité de France S.A. (EDF)

Électricité de France is the parent company of EDF Energy, the largest producer of low-carbon energy in the UK. It is one of the ‘Big Six’ utility companies in the UK energy sector, with the others being British Gas, SSE, E.ON, Scottish Power and Npower.

EDF Energy works alongside other subsidiaries under the EDF umbrella to meet the energy needs of its customers. This includes working with EDF Renewables Group, which owns 36 wind farms and one of the largest operational battery storage units in Europe.

EDF is listed on the Euronext Stock Exchange under the EDF ticker and it’s a component of the CAC Next 20. The CAC Next 20 includes the 20 largest companies after those that are included in the CAC 40.

SSE

SSE is an energy and utility company headquartered in Perth, Scotland. SSE formerly stood for Scottish and Southern Energy, although following a rebranding in 2010 the company became known simply as SSE. In January 2020, it sold its retail business, SSE Energy Services to OVO Energy for a reported £500 million.

SSE is one of the Big Six utility companies in the UK, and it is responsible for generating and supplying electricity and natural gas utilities to large areas of the UK and the Republic of Ireland. The company manages an energy distribution network in the UK and Scotland that serves more than 3.8 million homes and businesses.

SSE trades on the London Stock Exchange under the SSE ticker, and it is also a component of the FTSE 100.

United Utilities

United Utilities is the largest publicly listed water company in the UK, supplying drinking water and wastewater services to over 3 million homes and 200,000 businesses in the North West.

Much of the company’s water supply comes from man-made lakes or reservoirs, which are mostly located in the British lake and peak districts. Aside from supply water to its customers, United Utilities also looks after the maintenance of its supply lines and any leaks in their network.

United Utilities is listed on the London Stock Exchange under the UU ticker, and it is a component of the FTSE 100.

National Grid

National Grid is the electricity system operator for the UK, meaning it is responsible for ensuring that homes and businesses in the UK have access to the power they need, whenever they need it.
In this capacity, National Grid is responsible for buying or selling energy depending on current demand levels in the UK.

National Grid also has operations in the north-eastern US, meeting the electricity and gas utility needs of over 20 million customers in Massachusetts, New York and Rhode Island.

National Grid trades under the NG ticker, with a primary listing on the London Stock Exchange and a secondary listing on the New York Stock Exchange (NYSE). The company is also a component of the FTSE 100.

British Gas

British Gas is owned by Centrica, so you'll need to trade Centrica stock to get exposure to British Gas and its operations. Centrica itself is the largest supplier of natural gas utilities to domestic UK customers, and it is also one of the UK’s largest electricity suppliers.

British Gas was privatised in 1986 following the approval of the Gas Act. Since being acquired by Centrica in 1997, British Gas has continued to provide utility services across the UK, serving around 12 million homes all over the country. This makes British Gas the UK’s biggest energy supplier and one of the Big Six utility companies in the country.

Centrica is listed under the CNA ticker on the London Stock Exchange and it’s a component of the FTSE 250.

E.ON

As of 2021, E.ON supplies energy to over 3.8 million customers in the UK, which makes it one of the UK’s leading utility companies. Globally, it operates in more than 30 countries and serves 33 million customers.

As with other utility companies on this list, E.ON is making an effort to move towards green energy solutions, including shifting to more sustainable forms of energy generation such as wind farms, solar power and biomass.

E.ON’s renewable project is so well-established that by the end of 2019, the company had moved all of its British customers onto renewable forms of electricity. This made E.ON the first of the UK’s Big Six utility companies to make this transition.

E.ON is headquartered in Essen, Germany – and it trades under the EONG ticker on the Frankfurt Stock Exchange.

How to identify the best high dividend yield utility stocks

Some companies will pay dividends to investors, which can help to boost the long-term profitability of an investment position. Higher dividend yields are favoured by investors as they can imply greater returns on an initial investment – depending on the size of the position. Utility companies will often sport attractive dividend yields.

To calculate the dividend yield, you simply divide the annual dividend by the share price.

However companies can amend their dividends depending on their financial performance. A number of factors can influence this, including the current economic outlook and how well a particular sector is doing.

But utility companies tend to perform well when other companies might feel greater pressure in times of economic uncertainty, and therefore, their dividends are often perceived as safer than those of alternative sectors.

Utility stocks: what you need to know before investing

The most important thing to know before you invest in utility shares is that they tend to perform better than other stocks in times of economic uncertainty. As a result, many market participants will have utility shares in their portfolios, either as a hedge or as an outright long term buy and hold investment.

Utility shares summed up

• Utility shares are some of the most popular shares that investors use as part of a buy and hold strategy
• They often pay high dividend yields, but dividends are only available to investors who buy the shares outright
• Different utility stocks provide different services, including supplying electricity and water to their customers and maintaining their delivery networks
• Utility stocks tend to perform well during times of economic uncertainty, when stocks from other sectors might be expected to underperform or decline in value
• Aside from investing in utility stocks outright, you can also use financial derivatives to speculate on their price rising or falling during times of economic slowdown or recovery