The utility sector looks promising due to rising electricity demand from industrial growth, data centers, and electric vehicles. Global efforts to boost clean energy and significant investments in solar and wind power are driving this trend. The shift to cleaner energy is expected to sustain long-term growth, making utility stocks a stable investment with reliable dividends.
Hence, investing in strong utility stocks like UGI Corporation (UGI), Brookfield Infrastructure Corporation (BIPC), and Central Puerto S.A. (CEPU) could be a smart move, as they offer high dividend yields.
The utility industry faces challenges from increased demand due to heat and strained power systems. However, it benefits from strong clean energy growth and investments in renewables. In the U.S., electricity demand is expected to rise by 3% in 2024, with a 1.9% increase forecasted for 2025, driven by economic recovery and data center expansions.
In 2024, U.S. natural gas utilities are attracting more investment due to rising demand for LNG exports and domestic use. Investments target gas liquefaction, export terminals, and methane reduction, boosting the utility sector. Essentials like heat, water, and electricity make utilities stable investments, even in downturns. The global utilities market is expected to grow 6.8% annually, reaching $8.31 trillion by 2027.
The sector’s future looks promising due to expected interest rate cuts, local regulatory changes, and growing energy demand. Additionally, as utilities shift away from fossil fuels, they will likely see more stable costs and better profits, avoiding the volatility of fossil fuel prices. Investors’ interest in utility stocks is evident from the SPDR Select Sector Fund – Utilities’ (XLU) 18.8% returns over the past nine months.
Considering these conducive trends, let’s analyze the fundamental aspects of the three utility picks.
UGI Corporation (UGI)
UGI and its subsidiaries distribute, store, transport, and market energy products and related services internationally. The company operates through four segments: AmeriGas Propane, UGI International, Midstream & Marketing, and UGI Utilities.
In terms of the trailing-12-month gross profit margin, UGI’s 48.83% is 9.8% higher than the 44.47% industry average. Likewise, its 5.65% trailing-12-month Return on Total Capital is 41.9% higher than the 3.98% industry average. Furthermore, the stock’s 0.48x trailing-12-month asset turnover ratio is 120.1% higher than the 0.22x industry average.
UGI has paid dividends for 36 consecutive years. Its annual dividend is $1.50, which translates to a yield of 6.1% at the current share price. Its four-year average dividend yield is 4.29%. Moreover, the company’s dividend payouts have increased at a CAGR of 4% over the past three years.
UGI’s total revenues for the fiscal second quarter, which ended March 31, 2024, amounted to $2.47 billion. In addition, its adjusted net income attributable to UGI and adjusted EPS rose 16.5% and 17.3% year-over-year to $423 million and $ 1.97, respectively.
As of March 31, 2024, its total current liabilities amounted to $1.82 billion, compared to $2.27 billion as of March 31, 2023.
Street expects UGI’s EPS for the quarter ending December 31, 2024, to increase 5% year-over-year to $1.26. Its EPS for the quarter ending June 30, 2024, is expected to grow 4.3% year-over-year to $1.73 billion. Over the past nine months, the stock has gained 15.4% to close the last trading session at $22.12.
UGI’s POWR Ratings reflect strong prospects. It has an overall rating of B, which translates to a Buy in our proprietary system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It is ranked #3 out of 60 stocks in the Utilities – Domestic industry. It has a B grade for Growth and Quality. Click here to see UGI’s ratings for Value, Momentum, Stability, and Sentiment.
Brookfield Infrastructure Corporation (BIPC)
BIPC and its subsidiaries own and operate regulated natural gas transmission systems in Brazil. The company also engages in regulated gas and electricity distribution operations in the United Kingdom and electricity transmission and distribution and gas distribution in Australia.
In terms of the trailing-12-month Return on Total Capital, BIPC’s 11.21% is 181.5% higher than the 3.98% industry average. Likewise, its 15.13% trailing-12-month net income margin is 21% higher than the 12.50% industry average. Furthermore, the stock’s 81.64% trailing-12-month EBITDA margin is 121.7% higher than the 36.82% industry average.
BIPC pays an annual dividend of $1.62, which translates to a yield of 4.23% at the current share price. Its four-year average dividend yield is 3.43%. BIPC has paid dividends for the past three years.
For the fiscal first quarter ended March 31, 2023, BIPC’s total revenues rose 23% year-over-year to $5.19 billion. The company’s net income attributable to the partnership came in at $170 million, up 639.1% from the year-ago value. Its consolidated funds from operations rose 29.3% year-over-year to $1.47 billion. In addition, its FFO per unit came in at $0.78, representing an increase of 8.3% year-over-year.
For the quarter ending June 30, 2024, BIPC’s FFO is expected to increase 8.3% year-over-year to $0.78. Its revenue for fiscal 2024 is expected to increase 7.7% year-over-year to $19.30 billion. Over the past nine months, the stock has gained 39.1% to close the last trading session at $38.33.
BIPC’s robust fundamentals are reflected in its POWR Ratings. It has an overall rating of B, equating to a Buy in our proprietary rating system.
BIPC has a B grade for Growth and Quality. Within the Utilities – Domestic industry, it is ranked #2. To see BIPC’s ratings for Value, Momentum, Stability, and Sentiment, click here.
Central Puerto S.A. (CEPU)
Based in Buenos Aires, Argentina, CEPU engages in electric power generation in Argentina. It operates through three segments: Electric Power Generation from Conventional Sources, Electric Power Generation from Renewable Sources, and Natural Gas Transport and Distribution.
On April 22, 2024, CEPU announced a C$10 million ($7.28 million) investment in AbraSilver, joining Kinross Gold in a C$20 million ($14.55 million) partnership to explore new projects in Argentina. This deal includes forming advisory committees and consolidating shares, boosting CEPU's presence and resources in the Argentine mining sector.
In terms of the trailing-12-month EBIT margin, CEPU’s 23.70% is 10.6% higher than the 21.43% industry average. Likewise, its 44.76% trailing-12-month EBITDA margin is 21.6% higher than the 36.82% industry average. Furthermore, the stock’s 0.28x trailing-12-month asset turnover ratio is 27.2% higher than the 0.22x industry average.
CEPU’s annualized dividend of $0.91 per share translates to a dividend yield of 10.77% on the current share price. Its four-year average yield is 2.61%. Over the past five CEPU’s dividend payments have grown at CAGRs of 26.4%.
For the first quarter that ended March 31, 2024, CEPU’s revenues increased 21.9% year-over-year to ARS128.71 billion ($138.63 million). Similarly, its gross income increased 36.7% year-over-year to ARS55.89 billion ($60.20 million).
Moreover, its net income and EPS for the period grew significantly from the year-ago values to ARS27.50 billion ($29.62 million) and ARS15.77, respectively.
Analysts expect CEPU’s revenue for the fiscal year 2024 to increase 94.9% year-over-year to $721.87 million. Over the past nine months, the stock has gained 32.2% to close the last trading session at $8.41.
CEPU’s positive outlook is reflected in its POWR Ratings. It has an overall rating of B, equating to a Buy in our proprietary rating system.
It has an A grade for Value and Quality. It is ranked #3 out of 55 stocks in the Utilities - Foreign industry. Click here to see CEPU’s ratings for Growth, Momentum, Stability, and Sentiment.
What To Do Next?
43 year investment veteran, Steve Reitmeister, has just released his 2024 market outlook along with trading plan and top 11 picks for the year ahead.
UGI shares were trading at $24.58 per share on Friday afternoon, up $0.09 (+0.37%). Year-to-date, UGI has gained 3.13%, versus a 15.23% rise in the benchmark S&P 500 index during the same period.
About the Author: Abhishek Bhuyan
Abhishek embarked on his professional journey as a financial journalist due to his keen interest in discerning the fundamental factors that influence the future performance of financial instruments.
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