Defensive sectors remained in focus last year, mainly due to increased uncertainties in the broader markets. The “widow-and-orphan” utility stocks rose more than 22% in 2019, marginally underperforming the SPDR Dow Jones Industrial Average ETF (DIA), which soared 24% in 2019. We’ll see whether utilities can continue their upward trend in 2020 and how Wall Street analysts look at them at the moment.
Top utility stocks: NextEra Energy
The biggest utility stock by market capitalization, NextEra Energy (NEE), rallied almost 38% last year. Wall Street analysts seem positive but expect flattish movement from the stock for the next 12 months. They’ve given it a mean target price of $246.6 against its current market price of $242.2. This indicates a potential upside of a mere 2% in 2020. Mizuho Securities increased NEE’s target price from $202 to $245 last month.
NextEra Energy is one of the lowest yielding utility stocks but offers the highest dividend growth. Read more about its dividend profile in The Top Utility Stocks with Strong Dividend Growth. Its superior earnings growth has influenced the stock movement in the last several years.
Among the total of 16 analysts tracking NEE, 11 recommended a “buy,” while four recommended a “strong buy,” and one recommended a “hold.” Notably, the stock has not received a “sell” rating for more than a year.
The top regulated utility Southern Company (SO) stock surged more than 45% in 2019. The company did not report any cost overruns or delays in 2019 regarding its nuclear power project, Plant Vogtle. The last leg of the rally came when regulators approved its rate case late last month. Falling interest rates also helped it last year. It is currently trading at $63.7, close to its all-time high.
Analysts have given it a mean target price of $62, which implies a downside potential of more than 2% for the next 12 months.
Of the total 18 analysts tracking SO, 12 have recommended a “hold,” one recommended a “buy,” and another one recommended a “strong sell.” Four recommended a “sell” in January 2020. Credit Suisse raised its target price from $60 to $64 on December 18.
Utility stocks generally play out well over longer periods, mainly because of their slow-growing but stable dividends. To learn about how Southern Company fared in the past ten years, read How Southern Company Stock Has Done This Decade.
Duke Energy (DUK), the second-biggest utility stock by market cap, surged just 6% in the last 12 months. It has a target price of $95.9 against its current market price of $91.2. This indicates an estimated upside of more than 5% in 2020. Of the total 18 analysts covering DUK, five analysts recommended a “buy,” while one recommended a “strong buy.” Eleven analysts recommended a “hold,” and one recommended a “sell.” JPMorgan Chase cut DUK’s target from $102 to $100 last week.
Duke Energy stock notably underperformed peers in 2019. Its share dilution created a significant weakness in the stock in Q4 2019. It is one of the top-yielding utilities among peers and offers a decent dividend yield of 4.2%. With more than 93 consecutive years of dividends, it has one of the longest payment histories among peers. To learn more about its dividend profiles, take a look at DUK: Analyzing Duke Energy’s Dividend Profile.
Analysts have given Dominion Energy (D) stock a mean target price of $85.1 against its current market price of $82.8. This indicates a potential upside of almost 3% for the next 12 months. Of the total 17 analysts covering D, 11 recommended a “hold,” three recommended a “strong buy,” while another three recommended a “buy.” None of the analysts have recommended a “sell” in the last six months.
Dominion recently increased its annual dividends by 2.5% year-over-year for 2020. Notably, that’s a fall from its historical dividend growth of 9% over the last five years. It currently offers a dividend yield of 4.5%, higher than its peers’ average of 3%. Dominion Energy stock soared more than 15% in 2019, underperforming utilities at large.
To compare Dominion Energy’s dividend profile with top utility peers, read Analyzing the Dividend Profiles of Top Utility Stocks.
Top utility stocks in 2020
Importantly, all these top utility stocks look unexciting, considering their dull upside potential for 2020. The Utilities Select Sector SPDR ETF (XLU) gained 22% in 2019. Additionally, the Fed has indicated it would hold interest rates steady through next year. Thus, broader market volatilities might continue to be one of the important drivers for utility stocks going forward. They look attractive from the dividend standpoint. Their fair yields and decent dividend growth rate will likely be effective in case of any extreme negative events in 2020.
To read more about utility stocks, read Are Utility Stocks Losing Sheen after a Steep Run in 2019?