Utility stocks are usually not very interesting. But there’s no doubt that the utilities sector is exciting right now, after an impressive 35% rise over the past year. In fact, some investors may think the sector is no longer worth paying attention to. As October begins, if you take a moment to look at power companies like Constellation Energy (NASDAQ: CEG), NextEra Energy (NYSE: NEE), and Black Hills (NYSE: BKH), you’ll find that’s true. Not.
1. Constellation Energy is leading the nuclear renaissance
Clean energy is all the rage, and investment in solar and wind power is growing rapidly. But there’s another clean energy option that’s often forgotten: nuclear power. Constellation Energy is a competitive electricity company (i.e., sells electricity outside the traditional regulatory framework) with ownership interests in 14 nuclear power plants, including 25 nuclear power generating units. This is important. Because nuclear power is in the news right now. There’s a good reason for that.
A private company has just won government funding to restart a shuttered nuclear power plant. Constellation Energy has now begun the process of restarting its Three Mile Island nuclear power plant, and Microsoft (NASDAQ: MSFT) has agreed to buy all the power it produces for the next 20 years. . To be fair, the stock price skyrocketed after management announced this news. But if nuclear power is about to become a more important energy source, Constellation Energy is probably one of the best ways to invest directly in its future. If you are interested in investing in popular trends, you should immediately take a closer look at this utility.
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 compared to its peers. But if you’re a dividend growth investor, it might be worth paying that premium. why? That’s because NextEra Energy’s dividend has grown at a rate of 10% per year over the past 1, 3, 5, and 10 years.
The company expects earnings to grow between 6% and 8% through 2027, with continued dividend growth of 10% through at least 2026. That half percentage is considered pretty good for a power company, so we think NextEra Energy really stands out from the pack. .
There are two reasons why NextEra Energy has been able to grow so quickly. First, the company owns Florida Power & Light, the state’s largest regulated electric utility. This fundamental business has benefited from long-term migration trends to the Sunshine State. More customers mean more revenue and profits. On this strong core, NextEra Energy has built one of the world’s largest solar and wind companies. Given that this is the driver of growth and the shift towards renewable electricity is underway, we believe there is a long road ahead for further growth.
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If you have a value bias, you won’t like NextEra Energy. But when it comes to dividend growth, it’s hard to beat.
3. When it comes to dividends, Tiny Black Hills is king.
There’s a good chance you’ve at least heard of the names Constellation Energy and NextEra Energy. But you may not have heard of Black Hills, which isn’t all that surprising considering its small market cap of $4 billion. However, if you’re a dividend investor looking to make a living off the income your portfolio generates, you need to dig deeper into the Black Hills story.
The company serves 1.3 million customers in parts of Arkansas, Colorado, Iowa, Kansas, Montana, Nebraska, South Dakota and Wyoming. It’s an electric power company. Remarkably, the company’s customer base is growing nearly three times faster than the total U.S. population. Black Hills expects this customer growth to support annual profit growth of 4% to 6% for the foreseeable future. As a result, over time, dividends should grow along with profits.
This is where the story gets interesting, as Black Hills has increased its dividend every year for 54 consecutive years. This makes the small fry a dividend king, one of the few utility companies to achieve this impressive feat. Add in the 4.2% dividend yield, which is above the utility sector average of about 2.9% and near the highest stock yield in the past 10 years.
Like other utility stocks, Black Hills stock rose. However, this reliable dividend still appears to be on sale. If you rely on the income your portfolio generates, this boring dividend king could be a great addition to your portfolio in October.
Utility patches still have interesting options
To be fair, the rise in the utilities sector has made the sector less attractive in the big picture. But that’s not to say there aren’t interesting opportunities if you dig a little deeper. While Constellation Energy could be a big beneficiary of what appears to be a booming nuclear renaissance, NextEra Energy remains a dividend growth machine.
And Dividend King Black Hills continues to extend its impressive dividend streak for many more years, even though it has an attractive yield relative to the utilities sector and its history. If you’re looking for utility stocks to buy right now, one of these unique stories might pique your interest.
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Reuben Gregg Brewer has a position in the Black Hills. The Motley Fool has positions in and recommends Constellation Energy, Microsoft, and NextEra Energy. The Motley Fool recommends the following options: A long January 2026 $395 call on Microsoft and a short January 2026 $405 call on Microsoft. The Motley Fool has a disclosure policy.
3 Top Utility Stocks to Buy in October was originally published by The Motley Fool
