The combination of stable cash flows, essential services, and regulatory oversight make utility stocks attractive options for income-seeking investors looking for high dividend yields.
Given this backdrop, investors could consider buying high-dividend utility stocks SSE plc (SSEZY), Veolia Environnement SA (VEOEY), and UGI Corporation (UGI), for reliable income.
Utility stocks are known for paying high dividends because utilities are typically stable, regulated businesses with predictable cash flows, which allows them to consistently generate income and distribute a portion of that income to shareholders in the form of dividends. They are essential services like electricity, water, and natural gas, the demand of which tends to be relatively stable regardless of economic conditions, providing a steady source of revenue.
Additionally, utilities are often regulated by government agencies that provide a level of stability and predictability for investors and ensure fair returns on investments, which can translate into higher dividends for shareholders.
As per the International Energy Agency (IEA), global energy investment is projected to surpass $3 trillion in 2024, marking the first time it has reached this milestone. Of this total, approximately $2 trillion is expected to be allocated towards clean energy technologies and infrastructure. The growth is driven by rising renewable energy and power grids investments, increasing power generation capacities and growing demand for electricity. The global utilities market is anticipated to grow to $8.31 trillion by 2027, exhibiting a 6.8% CAGR.
Considering these factors, let’s examine the fundamentals of the utility sector stock picks.
SSE plc (SSEZY)
Headquartered in Perth, the United Kingdom, SSEZY generates, transmits, distributes, and supplies electricity. It generates electricity from water, gas, coal, oil, and multi fuel.
On June 11, 2024, SSEZY’s SSE Renewables, ABP, and APG’s consortium was selected by the Dutch authorities to progress with their bid in the competitive 2GW Alpha offshore wind tender site in the IJmuiden Ver Wind Farm Zone in the Netherlands.
On March 25, 2024, SSEZY reacquired multi-disciplinary contracting business Enerveo from investment firm Aurelius Group. Since Enerveo found it challenging to operate as an independent business, SSEZY works with Enerveo management to conduct a review to develop and then implement a longer-term strategy for each part of the business.
SSEZY has been paying dividends to its shareholders for the past 24 years. Its annualized dividend of $0.73 per share translates to a dividend yield of 3.23% on the current share price. Its four-year average yield is 5.25%. Over the past three years, SSEZY’s dividend payments have grown marginally.
SSEZY’s trailing-12-month asset turnover ratio of 0.38x is 75% higher than the industry average of 0.22x. Its trailing-12-month EBIT margin and net income margin of 27.88% and 16.36% are 30.5% and 30.6% higher than the industry averages of 21.36% and 12.53%, respectively.
SSEZY’s adjusted operating profit for the fiscal year that ended March 31, 2024, amounted to £2.43 billion ($3.08 billion). Its adjusted EBITDA came to £3.30 billion ($4.18 billion). The company’s adjusted SSEZY shareholder profit stood at £3.30 billion ($2.20 billion) and £158.50 per share, respectively.
For fiscal 2025, SSEZY’s revenue and EPS are expected to increase 8.7% and 9.2% year-over-year to $14.45 billion and $2.20, respectively. The stock has gained 10% over the past three months to close the last trading session at $22.48.
SSEZY’s POWR Ratings reflect this positive outlook. It has an overall rating of A, equating to a Strong Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
SSEZY has a B grade for Growth, Value, Stability, and Sentiment. It is ranked #3 out of 55 stocks in the Utilities - Foreign industry. Click here to see SSEZY’s Momentum and Quality ratings.
Veolia Environnement SA (VEOEY)
Headquartered in Paris, France, VEOEY designs and provides water, waste, and energy management solutions worldwide. It operates through France and Special Waste Europe, Europe excluding France, Rest of the World, Water Technologies, and Other segments.
On May 21, 2024, VEOEY’s Seureca, announced the acquisition of MRC Consultants and Transaction Advisers. The acquisition aligned perfectly with VEOEY's new 2024-2027 "GreenUp" strategic program, and strengthens the energy component of Seureca's business and is fully in line with the Group's objectives in terms of decarbonized energy and energy autonomy for both itself and its customers.
On May 14, 2024, VEOEY’s SIDEM, engineered and supplied key technology for the Hassyan seawater desalination plant in Dubai for $320 million. This significant project underlined VEOEY's commitment, reaffirmed in its new GreenUp strategic plan, to provide sustainable, low-carbon and energy-efficient solutions, while guaranteeing the preservation of water resources in a context of adaptation to climate change.
VEOEY has been paying dividends to its shareholders for the past 20 years. Its annualized dividend of $0.67 per share translates to a dividend yield of 4.48% on the current share price. Its four-year average yield is 3.24%. Over the past three and five years, VEOEY’s dividend payments have grown at CAGRs of 35.6% and 6.3%, respectively.
VEOEY’s trailing-12-month asset turnover ratio of 0.62x is 187.4% higher than the industry average of 0.22x. Likewise, its trailing-12-month Return on Total Capital of 4.06% is 2.2% higher than the industry average of 3.97%.
For the fiscal year that ended March 31, 2024, VEOEY’s revenue and EBITDA stood at €45.35 billion ($48.59 billion) and €6.54 billion ($7.01 billion), up 9% and 7.8% year-over-year, respectively. For the same quarter, its net income and EBIT increased 14.9% and 13.7% from the year-ago value to €1.34 billion ($1.43 billion) and €3.35 billion ($3.59 billion), respectively.
Street expects VEOEY’s fiscal 2024 EPS, to increase 8.8% year-over-year to $1.70. Its revenue for the quarter ending June 30, 2024, is expected to increase 41% year-over-year to $16.58 billion. VEOEY has declined 4.3% over the past nine months, closing the last trading session at $14.94.
VEOEY’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of B, equating to Buy in our proprietary rating system.
It has a B grade for Growth, Value, and Stability. It is ranked #12 in the Utilities - Foreign industry. Get VEOEY’s Momentum, Sentiment, and Quality ratings here.
UGI Corporation (UGI)
UGI distributes, stores, transports, and markets energy products and related services in the U.S. and internationally. The company operates through four segments: AmeriGas Propane, UGI International, Midstream & Marketing, and UGI Utilities.
UGI has been paying dividends to its shareholders for the past 36 years. Its annualized dividend of $1.50 per share translates to a dividend yield of 6.68% on the current share price. Its four-year average yield is 4.23%. Over the past three and five years, UGI’s dividend payments have grown at CAGRs of 4% and 6.8%, respectively.
UGI’s trailing-12-month asset turnover ratio of 0.48x is 120.7% higher than the industry average of 0.22x. Its trailing-12-month gross profit margin of 48.83% is 9.4% higher than the industry average of 44.63%. Similarly, its trailing-12-month Return on Total Capital of 5.65% is 42.2% higher than the industry average of 3.97%.
UGI’s total revenues for the fiscal second quarter that ended March 31, 2024, stood at $2.47 billion. In addition, its adjusted net income attributable to UGI rose 16.5% from the year-ago quarter to $423 million. Also, its adjusted earnings per share grew 17.3% year-over-year to $1.97. As of March 31, 2024, its total current liabilities amounted to $1.82 billion, compared to $2.27 billion as of March 31, 2023.
Analysts expect UGI’s revenue for the quarter ending June 30, 2024, to increase 4.3% year-over-year to $1.73 billion. Its EPS for the quarter ending December 31, 2024, is expected to rise 5% year-over-year to $1.26. The company surpassed the Street EPS estimates in three of the trailing four quarters. Over the past six months, the stock has declined 1.4%, closing the last trading session at $22.47.
UGI’s POWR Ratings reflect its robust prospects. It has an overall B rating, equating to Buy in our proprietary rating system.
UGI has a B grade for Growth, Momentum, and Quality. Within the Utilities - Domestic industry, it is ranked first out of 60 stocks. Click here for the additional POWR Ratings of UGI (Value, Stability, and Sentiment).
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SSEZY shares were trading at $23.07 per share on Tuesday afternoon, up $0.61 (+2.72%). Year-to-date, SSEZY has declined -2.99%, versus a 15.56% rise in the benchmark S&P 500 index during the same period.
About the Author: Neha Panjwani
From her school days, Neha harbored a profound fascination for finance, a passion that steered her toward a career as an investment analyst following the completion of her bachelor's degree in commerce. Currently enrolled in the CFA program, Neha is dedicated to further enriching her comprehension of investment fundamentals. Neha's primary objective is to aid retail investors in discerning optimal investment opportunities by diligently evaluating crucial aspects of financial instruments, with a primary focus on stocks and ETFs. Her commitment lies in empowering individuals to make informed and strategic investment decisions in the dynamic world of finance.
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