That strong financial profile has led American Water Works to forecast dividend growth of 7% to 10% per year through 2025. Meanwhile, it has a very conservative dividend payout ratio (it has targeted an average between 50% to 60% of its adjusted EPS). Credit rating agency S&P Global ( NYSE:SPGI ) has an A rating on its credit, making it one of the few utilities at that top level. The water utility has the financial flexibility to support its expansion plan thanks to its top-tier financial profile. The main driver of its outlook is a multibillion-dollar investment program to expand its regulated operations.
It makes most of its money by providing regulated water and wastewater services, with the rest coming from less predictable market-based activities, including providing water-related services to homeowners and the military.Īmerican Water Works expects to increase its earnings per share (EPS) at a compound annual rate of 7% to 10% between 20, which would make it one of the fastest-growing utilities in the country. With that in mind, here are some top utility stocks to buy and what to look for in a utility investment.Īmerican Water Works is the largest publicly traded water and wastewater utility in the U.S. The best utilities share additional noteworthy characteristics that give them the power to outperform. However, not all utility stocks deliver competitive investment returns.
As a result, they’re often ideal options for retirement income strategies.
That combination of predictable profitability and income generation makes utility stocks lower-risk options for investors. Because of that, utilities generate reliable earnings, enabling these companies to pay dividends with above-average yields. Meanwhile, the rates they charge for delivering these services are either regulated (approved by a government entity) or contractually guaranteed (nonregulated). Demand for utility services tends to remain steady, even during a recession. Utility stocks typically make stable investments. Utilities provide electricity, natural gas, and water and wastewater services to residential, commercial, industrial, and government customers.
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