The Best Utilities Stocks to Buy

Investors in utilities stocks were left feeling chilled by their 2023 results. The Morningstar US Utilities Index underperformed the Morningstar US Market Index by more than 30 percentage points. Utilities have continued to lag the overall market so far in 2024, too.

Are Utilities Stocks a Good Investment Today?

Despite the underperformance, Morningstar’s analysts see real growth possibilities among utilities stocks. According to Morningstar energy and utilities strategist Travis Miller, “For the first time in a generation, many utilities have pathways to earnings and dividend growth that could last a decade or more. The energy transition is picking up pace, clean energy targets are drawing near, and new data centers are sucking electricity. Utilities are planning for a surge of infrastructure investment to make the energy grid safer, more efficient, more reliable, and cleaner.”

The utilities industry is highly regulated, so any growth plans will require the approval of stakeholders such as politicians, regulators, and customers. Adds Miller: “Utilities must earn support for new infrastructure investment even if it means higher energy costs. The utilities that can prove customer benefits through the energy transition will be able to reward shareholders with earnings and impressive dividend growth.”

Utilities stocks also typically offer sizable dividend yields and, as a group, look 9% undervalued today.

The 10 Best Undervalued Utilities Stocks to Buy

These utilities all earn Morningstar Economic Moat Ratings of narrow or wide; these stocks are all also undervalued according to Morningstar’s metrics as of Feb. 28, 2024.

1. NextEra Energy NEE
2. Evergy EVRG
3. NiSource NI
4. WEC Energy Group WEC
5. Duke Energy DUK
6. Portland General Electric POR
7. Entergy ETR
8. Alliant Energy LNT
9. Essential Utilities WTRG
10. American Water Works Co AWK

Here’s a little bit more about each of the best utilities stocks to buy now, including commentary from the Morningstar analysts who cover them. All data is as of Feb. 28, 2024.

NextEra Energy

• Morningstar Price/Fair Value: 0.75
• Morningstar Uncertainty Rating: Medium
• Morningstar Economic Moat Rating: Narrow
• Forward Dividend Yield: 3.71%
• Industry: Utilities—Regulated Electric

NextEra Energy leads our list of the best utilities stocks to buy now. It is the cheapest utilities stock on our list. We expect 10% dividend increases through 2027, with the payout ratio remaining around 65%. Shares are trading at a 25% discount to our fair value estimate of $74.00.

NextEra Energy’s high-quality regulated utility in Florida and fast-growing renewable energy business give investors the best of both worlds: a secure dividend and industry-leading renewable energy growth potential.

NextEra’s regulated utility, Florida Power & Light, benefits from constructive regulation that offers high allowed returns, little regulatory lag, and increases in allowed returns to incorporate higher interest rates. We expect the utility to invest more than $40 billion through 2027. Growth opportunities include continued solar generation buildout, storm-hardening investments, and transmission and distribution infrastructure.

The utility has enjoyed industry-leading constructive regulation in Florida, but regulatory uncertainty has increased, given numerous press allegations of federal and state campaign finance violations. After completing an internal review, management said it believes the company would not be liable for any violations. However, we think it’s more likely that allowed returns will be lower than currently allowed.

The company’s highly contracted competitive energy business, NextEra Energy Resources, has proved to be a best-in-class renewable energy operator and developer. The company was an early adopter of wind generation, building a competitive advantage by securing some of the country’s most desirable locations and locking in 20-year contracts with price escalator clauses.

NextEra’s current plans shift the focus to solar. More than half of its planned renewable energy growth through 2026 will be solar and energy storage. The rest is onshore wind. Higher supply and interest costs could threaten near-term renewable energy development, but we think the long-term growth trajectory for clean energy remains. We believe there is a long runway of strong demand for renewable energy resources beyond our five-year outlook.

We think management should be able to manage interest-rate pressure, in part due to a strong balance sheet and interest-rate hedging strategy. We expect management to execute on NEER’s development program range of 33-42 gigawatts in 2023-26. As of the end of October, the unit has already secured 21 GW of new projects.

Evergy

• Morningstar Price/Fair Value: 0.77
• Morningstar Uncertainty Rating: Low
• Morningstar Economic Moat Rating: Narrow
• Forward Dividend Yield: 5.12%
• Industry: Utilities—Regulated Electric

Evergy provides power to parts of Kansas and Missouri. It finds a competitive advantage in its mix of federally regulated transmission assets and state-regulated generation and distribution assets. We forecast 6% dividend increases for at least the next four years, in line with earnings growth. This cheap utilities stock currently looks 23% undervalued relative to our $65.00 fair value estimate.

Evergy formed in June 2018 when Great Plains Energy and Westar Energy merged after two years spent working through the regulatory approval process in Kansas and Missouri. With the integration complete and a new management team in place, Evergy is working to improve historically challenging regulation and invest in clean energy.

Evergy must secure constructive regulatory outcomes in Missouri and Kansas to support growth plans that include $11 billion of capital investment during the next five years, primarily to replace aging coal plants with renewable energy. Legislation in Missouri should allow Evergy to receive compensation for coal plants it retires, however, regulators control the exact implementation and financial impact. This creates uncertainty for investors as Evergy transitions its generation fleet away from fossil fuels.

Despite recent changes in Missouri’s legislation and ratemaking, we still consider the state’s rate regulation less constructive than most other states. Regulatory negotiations in Missouri during the second half of 2022 resulted in a mostly disappointing outcome. Another round of rate negotiations could start in 2024.

Kansas, which represents about half of Evergy’s total asset base, has a more constructive regulatory environment than Missouri. Kansas regulators have supported renewable energy investment for many years. Evergy’s extensive transmission network, which could top 15% of its asset base in the coming years, benefits from favorable federal regulation. A rate settlement in late 2023 was mostly constructive.

Evergy management said it plans to direct all of Evergy’s growth capital to its regulated utilities at least through 2025. Senior leadership has extensive experience at companies with competitive power businesses, and we wouldn’t be surprised if Evergy directs some capital investment outside of the utilities, perhaps with a partner.

Evergy has raised the dividend an average 6% annually since the merger. We expect the dividend to grow in line with earnings for the foreseeable future.

NiSource

• Morningstar Price/Fair Value: 0.79
• Morningstar Uncertainty Rating: Low
• Morningstar Economic Moat Rating: Narrow
• Forward Dividend Yield: 4.07%
• Industry: Utilities—Regulated Gas

Top utilities stock NiSource is one of America’s largest natural gas distribution companies. It earns a narrow moat rating due to its service territory monopolies across six states and efficient scale advantages. We expect dividend growth to remain near 6% with a payout ratio around 60% for at least the next three years. This cheap stock looks 21% undervalued compared with our $33.00 fair value estimate.

NiSource’s focus on electric and gas infrastructure, including renewable energy, creates growth opportunities that could last for a decade or longer.

We expect about half of NiSource’s operating income will come from its Indiana gas and electric utility, NIPSCO, and the rest from its six natural gas distribution utilities, excluding minority interest. We expect the gas utilities to grow along with the electric business in the near term, keeping that earnings mix about the same for at least the next four years.

Driving that growth is $16 billion of investment that NiSource plans during the next five years for electric and gas system infrastructure projects. Key initiatives include replacing steel and cast-iron pipe with plastic at its natural gas distribution utilities and replacing coal plants with renewable energy at its electric business.

Constructive state rate regulations allow NiSource’s utilities to collect a return of and a return on the bulk of its investments within 18 months, enhancing cash flow. We expect modest customer growth combined with NiSource’s infrastructure growth investments to support 7% long-term annual earnings growth and 6% annual dividend growth.

To help fund its growth and strengthen its balance sheet, NiSource sold a 19.9% interest in its Indiana utility to Blackstone in 2023 for $2.16 billion, an 80% premium to sector valuations at the time. The premium price provides low-cost equity financing for its growth plan.

NiSource’s business simplification started with its Columbia Pipeline Group separation in 2015. In October 2020, NiSource sold its Columbia Gas of Massachusetts utility and received $1.1 billion of proceeds that it used to strengthen the balance sheet. The sale came nearly two years after a natural gas explosion on NiSource’s Massachusetts system killed one person north of Boston. Insurance covered roughly half of the almost $2 billion of claims, penalties, and other expenses.

WEC Energy Group

• Morningstar Price/Fair Value: 0.81
• Morningstar Uncertainty Rating: Low
• Morningstar Economic Moat Rating: Narrow
• Forward Dividend Yield: 4.31%
• Industry: Utilities—Regulated Electric

Trading 19% below our fair value estimate of $96.00, WEC Energy Group is one of the cheapest and highest-quality regulated utilities that Morningstar covers. In our opinion, WEC management has one of the strongest records in the sector of achieving and exceeding its financial expectations and earns an Exemplary Capital Allocation Rating. WEC also targets a 65%-70% dividend payout ratio.

WEC Energy Group is the largest Midwest utility, with approximately $26.5 billion of rate base and derives most of its earnings derived from regulated operations. Nearly 75% of earnings come from constructive Wisconsin and Federal Energy Regulatory Commission regulation. Its regulated-like commercial renewable energy business accounts for the remainder of earnings.

We expect the company to invest more than $21 billion of capital through 2027, which includes its investment in American Transmission. This investment plan supports our forecast that the company will achieve the high end of management’s narrow 6.5%-7% annual earnings growth target.

In Wisconsin, the company enjoys rates based on two-year forward test years and an earnings-sharing mechanism over its allowed return on equity. Its average allowed ROE tops 9.8% at the company’s subsidiaries in the state and is consistently above peers’. In late 2022, the company’s Wisconsin subsidiaries received a final rate case order that is consistent with our view that Wisconsin remains a very constructive regulatory environment for utilities.

The company is moving aggressively on its renewable energy investment plan. It targets investing $6.8 billion for 3.8 gigawatts of new solar, battery storage, and wind generation development through 2028. The company plans to retire 1,400 MW of coal generation and to retire older, less-efficient natural gas generation. The company plans to use coal generation as a backup fuel only by 2030 and exit coal generation by 2032.

The company recently increased and updated its capital program, with plans to spend $23.4 billion, a $3.3 billion increase from its prior program from 2024-28. The increase is to support electricity demand growth, an estimated 4.5%-5.0% from 2026-28, based on significant economic development in southeastern Wisconsin, particularly data centers. The company will increase investments in renewable energy, natural gas generation, and transmission.

WEC Energy holds a 60% majority stake in ATC, through which it earns above-average equity returns despite recent FERC decisions.

Duke Energy

• Morningstar Price/Fair Value: 0.81
• Morningstar Uncertainty Rating: Low
• Morningstar Economic Moat Rating: Narrow
• Forward Dividend Yield: 4.51%
• Industry: Utilities—Regulated Electric

Southern powerhouse Duke Energy earns a narrow economic moat rating for its capital investment plans and stable operations in constructive regulatory jurisdictions. We anticipate 4% average annual dividend growth, implying a 68% payout based on our 2027 earnings estimate. Duke Energy stock is priced at a 19% discount to our fair value estimate of $112.00.

Duke Energy is one of the largest regulated utilities in the United States. Florida is Duke’s most constructive and attractive jurisdiction, with higher-than-average load growth and best-in-class regulation that allows for higher-than-average returns on equity, forward-looking rates, and automatic base-rate adjustments. The utility is installing 300 megawatts of solar annually with additional infrastructure investment opportunities.

In North Carolina, Duke’s largest service territory, the outlook has improved significantly. Legislation allows for multiyear rate plans, including rate increases for projected capital investments. Duke recently received constructive outcomes at both its Carolina utilities, which included increases in allowed returns on equity and thicker equity layers. State legislation also allows for performance incentive mechanisms, usage-decoupled rates for residential customers, and supports utilities’ investment to meet the state’s clean energy targets.

Indiana remains constructive. The subsidiary is allowed recovery for investments for renewable energy and future recovery on and of investments for coal ash remediation, with a forward-looking test year. The unit’s 20-year integrated resource plan calls for 7 gigawatts of renewables, 400 megawatts of energy storage, and 2.4 GW of natural gas generation.

Duke’s $65 billion capital investment plan for 2023-27 is focused on clean energy, as the company works toward net-zero carbon emissions by 2050 and net-zero methane emissions by 2030. Management sees growth opportunities beyond its five-year forecast, with expectations for $80 billion-$85 billion of capital expenditures helping to support future rate base growth.

Management recently sold the 3.4 GW commercial renewable energy business to Brookfield Renewable Partners for $2.8 billion, including debt, eliminating all non-rate-regulated businesses in Duke’s business mix. Duke was one of the last utilities to sell its commercial renewable energy portfolios. Duke will use the $1 billion in proceeds to pay down holding company debt. Overall, we like Duke’s pivot to rate-regulated operations.

Portland General Electric

• Morningstar Price/Fair Value: 0.81
• Morningstar Uncertainty Rating: Low
• Morningstar Economic Moat Rating: Narrow
• Forward Dividend Yield: 4.67%
• Industry: Utilities—Regulated Electric

Portland General Electric is the only firm on our list of cheap utility stocks that lands in the small value segment of the Morningstar Style Box. We expect dividends to grow slightly slower than management’s 5%-7% annual growth target given the amount of capital necessary to fund its investment plan. This utilities stock looks 19% undervalued compared with our $50.00 fair value estimate.

With an expanding customer base and a service territory with rich renewable energy resources, Portland General Electric, or PGE, has found plenty of growth investments with public policy support. Oregon legislation requires PGE to cut carbon emissions on its system by 80% by 2030 and eliminate carbon emissions by 2040. Achieving these goals while maintaining reliability will require a large step-up in investment during the next two decades.

PGE’s growth investments show no signs of slowing. PGE is averaging $700 million of core capital investment, a substantial increase from its previous annual run rate of capital investment. We think that core investment rate could approach $1 billion during the next five years. On top of this, PGE has taken on large projects such as the $160 million Wheatridge wind-solar-battery project, a $200 million operations center, and the $415 million Clearwater wind project.

Regulatory support for this growth plan will be critical. Oregon regulation is mostly constructive with forward-looking rates and timely decisions. The state’s 20-year integrated resource plan and four-year action plan give PGE and regulators clarity on potential growth investments.

Four rate case settlements in the last five years—most recently in late 2023—were key accomplishments demonstrating constructive alignment with many stakeholders. This comes after less favorable regulatory outcomes in 2015 and 2016. The 2023 settlement also includes initial steps to reducing short-term volatility due to PGE’s exposure to power prices, unusual among U.S.-regulated utilities.

Electricity demand growth in the region should reduce regulatory risk as costs are spread over a larger customer base. PGE also benefits from renewable energy-specific ratemaking, reducing the need for lengthy base rate reviews.

The board made investors nervous when it skipped a dividend increase in April 2020 before raising it in July 2020, keeping PGE’s annual dividend growth streak intact. We think PGE’s dividend growth will trail earnings growth slightly while it goes through this large investment cycle.

Entergy

• Morningstar Price/Fair Value: 0.82
• Morningstar Uncertainty Rating: Low
• Morningstar Economic Moat Rating: Narrow
• Forward Dividend Yield: 4.49%
• Industry: Utilities—Regulated Electric

Entergy stock is 18% undervalued relative to our $123.00 fair value estimate. This top utilities stock has owned the second-largest US nuclear fleet for nearly two decades with plants in the Northeast and the Southeast. Entergy has raised its dividend 6% in each of the last three years, and we expect future dividend increases to track earnings growth.

Entergy’s growing, energy-hungry customer base and constructive rate regulation in the Southeastern United States give the company a long runway of earnings and dividend growth potential.

We expect Entergy to invest more than $6 billion annually for the next five years to upgrade its large grid network and expand its clean energy portfolio. Industrial customers, which represent about half of Entergy’s customer base, generally support these investments as they aim to reduce carbon emissions.

We forecast Entergy’s planned growth investments and customer growth will lead to annual earnings growth in line with management’s 6%-8% target. Constructive regulatory outcomes could push management’s $19.6 billion capital investment plan in 2024-26 higher, boosting earnings growth to near 8% through the decade.

In the last few years, Entergy has transformed itself into a mostly regulated utility, similar to many of its peers. It owned the second-largest U.S. nuclear fleet for nearly two decades with six plants in the Northeast and four rate-regulated plants in the Southeast. The plants in the Northeast at their peak earned more than Entergy’s rate-regulated utilities.

The Northeast nuclear fleet became a financial drag as power prices fell and never rebounded. Management began exiting the business in 2014 by selling and retiring the plants, most notably the Indian Point units that supplied as much as 25% of New York City’s electricity but succumbed to antinuclear policymakers. Entergy closed its last nonutility nuclear plant, Palisades (Michigan), in May 2022. It has transferred decommissioning responsibilities to other companies.

Entergy no longer has direct energy market exposure. Its unique risk is severe storm activity in its service territory that can result in billion-dollar repair costs. Regulators have a long history of allowing Entergy to recover those costs from customers, limiting the financial risk for shareholders. Part of the company’s growth investment is to harden the grid against storms.

Given the growth potential of Entergy’s utilities, we expect dividend increases to track earnings growth.

Alliant Energy

• Morningstar Price/Fair Value: 0.82
• Morningstar Uncertainty Rating: Low
• Morningstar Economic Moat Rating: Narrow
• Forward Dividend Yield: 4.02%
• Industry: Utilities—Regulated Electric

Our analyst sees growth opportunities ahead for Alliant Energy as it continues to expand in Iowa and Wisconsin. We believe Alliant’s dividend is well covered with its regulated utilities’ earnings and expect the dividend payout ratio to remain between 60% and 70%. This cheap utilities stock trades at an 18% discount to our fair value estimate of $58.00.

We expect Alliant Energy to invest over $10 billion from 2023-27, supporting our expectation that the company will achieve the top half of management’s 5%-7% growth target. Management estimates continued capital investment opportunities in the second half of the decade, supporting growth beyond our forecast.

Interstate Power and Light, or IP&L, continues to build out renewable energy in Iowa. In addition to its significant wind generation in Iowa, for which the company earns a premium return on equity, the subsidiary now aims to install significant solar generation as well as distributed energy resources. We continue to believe Iowa offers ample renewable energy investment opportunities—both wind and solar—to support the utility’s Clean Energy Blueprint, which plans to eliminate all coal generation by 2040 and achieve net-zero carbon dioxide emissions by 2050.

At Wisconsin Power and Light, renewable energy is also a focus as the company begins replacing retiring coal generation. WPL plans sizable solar energy investments paired with battery storage. WPL has similar clean energy goals IP&L, including a 50% reduction in carbon emissions by 2030, eliminating coal from its generation fleet by 2040, and reaching net-zero carbon emissions from its generation fleet by 2050.

Alliant benefits from operating in two constructive regulatory jurisdictions. To maintain earned returns near allowed returns during this period of high investment, management has worked to reduced regulatory lag, received above-average allowed returns across its subsidiaries, and aims continue to reduce operating costs for the near term.

At WPL, Alliant Energy received a final rate case decision that supports continued investment and earnings growth in the region in 2024-25. The unit’s 9.8% allowed return on equity is moderately higher than other regulated utilities, supporting our constructive view of the region.

American Transmission Co., which we consider a wide-moat business, is tucked away from consolidated results (16% equity interest). Transmission offers higher returns relative to other rate-regulated investments.

Essential Utilities

• Morningstar Price/Fair Value: 0.83
• Morningstar Uncertainty Rating: Low
• Morningstar Economic Moat Rating: Narrow
• Forward Dividend Yield: 3.53%
• Industry: Utilities—Regulated Water

The first of two water providers on our list of the cheapest utility stocks, Essential Utilities looks 17% undervalued compared with our $42.00 fair value estimate. The company has paid a consecutive quarterly dividend since 1945 and has increased the dividend by at least 5% for 30 consecutive years. We expect Essential will be able to continue increasing the dividend at this rate or higher for the foreseeable future.

For more than 50 years, Essential Utilities—formerly Aqua America—was one of the few pure-play water utilities in the United States. But its $4.3 billion acquisition of Peoples Natural Gas in March 2020 made the company nearly 50% larger and diversified its earnings mix.

The gas business contributes about one third of earnings on a normalized basis. Its asset base is growing faster than that of the water business due to infrastructure upgrades. As municipal water acquisitions have slowed in the near term, the gas business has become a critical source of growth.

Although water conservation has reduced demand for several decades, Essential has increased earnings and the dividend by replacing and upgrading old infrastructure. Similarly, Peoples should produce steady earnings growth as it replaces and upgrades system infrastructure, even though we expect little usage growth.

Essential also grows by acquiring small, typically municipally owned water systems. In the U.S., 85% of the population is served by a municipal water utility, offering a long runway of acquisition growth opportunities. Tighter environmental standards could raise costs for municipalities, spurring more acquisition opportunities.

We expect 6% annual earnings growth during the next three years, in line with management’s target. Growth could trend higher if Essential can close the pending $276.5 million Delcora acquisition and increase water acquisitions. Long term, we assume an average $200 million of water acquisitions annually. Essential likely will fall short of that in 2024, excluding Delcora.

State fair market value laws require Essential to pay municipalities at least the assessed value of the system it acquires and allow the company to add these assets to rate base at the assessed value rather than historical cost. The municipalities benefit by ensuring they get fair prices, and Essential shareholders benefit by ensuring the company doesn’t overpay for growth. In many cases, these deals are immediately value-accretive.

American Water Works Co.

• Morningstar Price/Fair Value: 0.83
• Morningstar Uncertainty Rating: Low
• Morningstar Economic Moat Rating: Narrow
• Forward Dividend Yield: 2.40%
• Industry: Utilities—Regulated Water

American Water Works rounds out our list of the best utilities stocks to buy. The second water provider on our list features a stable, low-risk business model and manageable long-term debt maturities. We expect the company to maintain its dividend payout ratio in the mid-50% range, allowing dividends to grow 8% over the next five years. American Water Works trades at a 17% discount to our fair value estimate of $142.00.

American Water Works’ earnings growth is consistently higher than most regulated electric utilities even though core retail water use has steadily fallen as a result of efficiency savings.

American Water Works has one of the best long-term growth profiles in the sector. Earnings growth is supported by the company’s plan to invest $16 billion to $17 billion from 2024-28, a sizable step up from the company’s previous five-year $14 billion to $15 billion investment program. Capital deployment is supported by constructive regulatory frameworks across its jurisdictions.

The company is replacing and upgrading infrastructure that is decades old across its system, resulting in significant organic growth. Additionally, we expect the company to grow by acquiring small, typically municipal-owned water systems. While some of the company’s peers have had difficulty closing municipal water acquisitions, American Water continues to execute on identifying and closing acquisitions.

Fair market value laws in several states support American Water Works’ acquisition strategy. These laws require the company to pay municipalities at least the assessed value of the system it acquires and allow American Water Works to add these assets to rate base at the assessed value rather than historical cost. The municipalities benefit by ensuring they get fair prices, and American Water Works shareholders benefit by ensuring the company doesn’t overpay for growth. In many cases, these deals are immediately value-accretive. The pipeline for future acquisitions remains very healthy.

The company’s regulatory strategy is to work proactively with regulators to ensure timely recovery of rising costs and gain support of continued investments. This has helped the company mitigate the headwinds of rising operating and interest costs. Management consistently delivers on a busy regulatory calendar, resulting in constructive outcomes.

The company’s only nonregulated business is the small military service group, which produces regulated-like earnings based on long-term government contracts that are longer than 30 years. The company has a long runway of additional contract opportunities.

How to Find More of the Best Utilities Stocks to Buy

Investors who’d like to extend their search for the best utilities stocks can do the following:

• Review Morningstar’s comprehensive list of utilities stocks to investigate further.
• Read the latest news about notable utilities stocks from Morningstar’s lead utilities analysts Andrew Bischof and Travis Miller.