Even with higher interest rates, these top picks hold potential for both income and growth.
Utility stocks have been the worst-performing sector in 2023. But there’s a silver lining for investors looking to put money to work in these dividend-paying companies: Many are in undervalued territory, according to Morningstar analysts.
Not only that, but the sector is also offering attractive income potential. The median dividend yield of 3.7% is the highest it’s been since 2013, and in line with the 20-year average.
With these stocks on balance trading 3% below their Morningstar fair value estimates, “Overall, we think higher yields and undervalued growth make this a good time to buy utilities,” says Morningstar utilities and energy sector strategist Travis Miller.
Of the 39 utilities stocks covered by Morningstar analysts, 18 are undervalued, with two in 5-star territory and 16 rated 4 stars. Only five are considered overvalued. “That’s more 4-star utilities than we’ve typically had over the last decade plus,” Miller says.
Morningstar analysts highlight four top utilities stock picks that offer attractive dividend yields and growth potential:
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