3 Utility Dividend Stocks to Buy Hand Over Fist in June

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If you are looking for a utility stock with a strong dividend story, then take a look at this trio of energy providers today.

Dividend-paying utility stocks were once viewed as the cornerstone of a conservative investor’s income portfolio. The market is much larger today than when utilities were called “widows and orphans” stocks, but more dividend stock options don’t actually change the desirability of adding some boring utilities to your portfolio of dividend stocks. As June gets underway, you might want to take a look at NextEra Energy (NEE -1.71%), Brookfield Renewable (BEPC -3.35%) (BEP -4.24%), and, for those with a contrarian bent, Dominion Energy (D -1.59%). Here’s why.

1. NextEra Energy is a dividend growth machine

NextEra Energy has grown its dividend at around 10% a year, on an annualized basis, over the past decade. That’s a good figure for any company, let alone a boring utility. To put that number into perspective, a mid-single-digit dividend growth rate would normally be considered strong for a utility. But here’s the thing: NextEra is projecting 10% dividend growth out until at least 2026, as well. If you are a dividend growth investor or a growth and income investor, you will love NextEra Energy.

NextEra Energy achieves its dividend growth with a unique approach. The core of the business is a large regulated utility operation, largely made up of Florida Power & Light. This division provides slow and steady growth. On top of the regulated utility operations, NextEra layers on one of the largest solar and wind companies on the planet, which is where the overall company’s growth is coming from.

By 2026 or so, NextEra plans to build as much as 41.8 gigawatts of renewables, which is a huge sum and suggests that there’s plenty of growth ahead for the business as a whole. While the stock’s yield is modest at 2.6%, the dividend growth story is the real draw here.

Brookfield Renewable is focused on clean energy

That said, some investors might be looking at the utility sector and thinking that clean energy is the real future, which is why NextEra is investing so heavily in the space. If you want to ditch the old technology and focus only on the new, Brookfield Renewable is a great option, in either limited partnership form or via the corporate share class. Both provide a growing income stream and attractive yields.

The partnership class is yielding around 5% today, while the corporate class has a dividend yield of roughly 4.5%. (Demand from institutional investors that may not be allowed to own partnerships is the likely cause for the yield difference, since the two classes pay identical distributions.)

Brookfield Renewable owns a globally diversified portfolio of clean energy assets, including hydroelectric, solar, wind, and storage. However, it is important to understand that Brookfield Renewable is managed by Brookfield Asset Management (BAM -2.54%). It is a way for small investors to invest alongside a giant asset manager with a long history in the infrastructure sector.

This changes the story a little bit, because Brookfield Renewable’s focus isn’t on simply buying and running renewable power assets. Its goal is to buy assets at attractive prices, increase their value through strong operations, and then sell them if it can get an attractive price. That’s a bit different from a traditional utility, but it has worked out well for income-focused investors so far.

Dominion Energy is in turnaround mode

The last stock up is Dominion Energy, one of the largest regulated utility companies in the United States. It has a yield of around 5% today (for reference, the average utility yields around 3.3%). And it recently cut its dividend after selling off a large midstream business to Warren Buffett’s Berkshire Hathaway. Following that event, management decided to undertake a business review that has resulted in three natural gas utilities being sold to Enbridge. Today, the utility is basically a pure play electricity generator.

So the real attraction here is to be found in the future. Right now, Dominion is working on strengthening its balance sheet (at least partly through asset sales) and lowering its dividend payout ratio back in line with the peer group. It will take a few years for these efforts to play out, but once Dominion has gotten its fiscal house in order, dividend growth will likely track higher with earnings growth.

The earnings growth story here is fairly reliable, given the regulated operations that underpin Dominion’s business. Add in material exposure to one of the highest-demand data center markets (data centers use a huge amount of energy), and there’s another reason to be positive. Although this story is all about the turnaround, for long-term investors with a contrarian bent, this high-yield utility could be attractive right now.

Plenty of dividend options in utility land

Don’t move past utilities because they are just boring stocks — that’s not the case at all. If you are a dividend growth maven, you’ll really like NextEra Energy. If you want to move with the world toward clean energy, while collecting an attractive and growing income stream, Brookfield Renewable will be of interest. And if you like a good turnaround story, then you’ll appreciate Dominion Energy and its lofty yield.

Reuben Gregg Brewer has positions in Dominion Energy and Enbridge. The Motley Fool has positions in and recommends Berkshire Hathaway, Brookfield Asset Management, Brookfield Renewable, Enbridge, and NextEra Energy. The Motley Fool recommends Brookfield Renewable Partners and Dominion Energy. The Motley Fool has a disclosure policy.