Utility stocks can be a solid investment in times of market uncertainty.
They are often monopolies or part of oligopolies, with government-regulated prices. All that makes their revenue more predictable. And they generally offer dividends, providing regular income to investors.
One of the largest, perhaps the largest, U.S. utilities is 141-year-old Duke Energy (NYSE: DUK). It has 10.3 million electric and natural gas customers in seven states. The biggest customer totals are in North Carolina (4.6 million) and Florida (2 million).
Utilities have been on a roll lately, with strong demand stimulated by the growth of artificial-intelligence inspired data centers, electrification of transportation and other industries and simple population growth.
U.S. utilities generated 2.58 billion megawatt hours of power year to date through July, up 3.1% from the same period of 2024. And output is expected to keep increasing.
So it’s no wonder that the S&P 500 Utilities index has climbed 20% year to date, beating out the overall S&P 500, which has gained 15%.
Duke has risen 16% year to date through early October and 13% over the past 12 months. It has increased its dividend ever year for at least the past 19, with a current forward yield of 3.4%.
Capital infusions
In August, Duke announced a $4 billion increase in its capital expenditure plan for the next five years, putting the total at $87 billion. Half of that increase will come from a $6 billion sale of a 19.7% stake in Duke Energy Florida to renowned Brookfield Asset Management. A deal like that allows Duke to bring in money without issuing stock or taking on debt.
In July, the company announced an agreement to sell its Piedmont Natural Gas Tennessee distribution business for $2.5 billion to natural gas company Spire. A majority of that windfall ($1.5 billion) also will be devoted to capital spending.
Duke reported solid earnings for the second quarter. Revenue registered $7.5 billion, up 4.7% from a year earlier. Earnings per share totaled $1.25, up 11%. It reiterated its forecast for adjusted earnings per share to enjoy an annual growth rate of 5%-7% through 2029. That’s based on the midpoint of its forecast for 2025.
Positive take from analysts
Many analysts are bullish on Duke. Morningstar’s Andrew Bischof is one of them. He says the company scores high on its relationship with state regulators. That’s important because they have to approve any rate increase that the company seeks.
Relationships with regulators are the “most critical component” of Morningstar’s evaluation of utilities, he said. The regulatory environment for Duke is especially positive in North Carolina and Florida, its two biggest states in terms of customer numbers, Bischof said. “We anticipate Duke to continue benefiting from constructive regulatory rate increases to support its investment.”
So things are looking up for the utility, but be careful. Its forward price-earnings ratio is now 18.8, up from its five-year average of 17.8. So further gains may be muted for the short term.
The author owns shares of Duke.
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