The Best Utilities Stocks to Buy (2024)

Utilities stocks have shone brighter in recent months, thanks to optimism about potential electricity demand growth from data centers and artificial intelligence. So far this year, the Morningstar US Utilities Index continues to outperform the Morningstar US Market Index, 21.92% to 13.37%.

Are Utilities Stocks a Good Investment Today?

Morningstar energy and utilities strategist Travis Miller sees reasons for confidence, saying: “In October 2023, utilities reached their cheapest valuation since the 2008-2009 recession based on our fair value estimates. Since then, utilities have climbed nearly 40%, including dividends. Utilities’ dividend growth shows no signs of stopping.”

“After a brief lull in utilities’ yearlong rally, the sector has jumped again this summer as at least one Fed rate cut appears imminent. Most U.S. utilities are trading at or above fair value. Dividends are up 5.6% sectorwide in 2024, and nearly all U.S. utilities are positioned to raise their dividends again in 2025.”

“Data center energy demand might not materialize as fast as many think,” he adds. “Utilities must get support from many stakeholders, including regulators, before investing in infrastructure to serve data centers. Minimizing customer rate impacts will be key.”

Utilities stocks typically offer sizable dividend yields and, as a group, look slightly overvalued today.

The 10 Best Undervalued Utilities Stocks to Buy

These utilities stocks all are undervalued according to Morningstar’s metrics as of Sept. 4, 2024.

1. New Fortress Energy NFE
2. Brookfield Renewable Partners/Brookfield Renewable Corp. BEP BEPC
3. Essential Utilities WTRG
4. Evergy EVRG
5. Eversource Energy ES
6. The AES Corp AES
7. NiSource NI
8. Portland General Electric POR

Here’s a little 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 Sept. 4, 2024.

New Fortress Energy

• Morningstar Price/Fair Value: 0.39
• Morningstar Uncertainty Rating: Very High
• Morningstar Economic Moat Rating: NA
• Forward Dividend Yield: 3.42%
• Industry: Utilities—Regulated Gas

Heading our list of the best utilities stocks to buy now, New Fortress Energy is an integrated gas-to-power company. We recently lowered our fair value estimate for this gas provider, but our long-term view of growth driven by a looser liquefied natural gas market remains intact. We expect robust growth from New Fortress Energy over the next few years. This cheap dividend stock currently looks 61% undervalued relative to our $30.00 fair value estimate.

Befitting its private equity roots, New Fortress Energy seeks to provide an integrated solution for certain regions that lack where cheap, reliable, and efficient sources of power are scarce, primarily by providing gas or liquified natural gas solutions. It has been reasonably successful at identifying and acquiring infrastructure in countries such as Jamaica or Brazil that are very underutilized because of existing market challenges or relative geographic isolation, and using them to supply gas to the country, often displacing far more expensive and less reliable sources of power.

New Fortress goes beyond just sourcing and supplying gas to countries that are operating in relative energy poverty. It will build gas power plants and seek to retain control over every part of the value chain, operating similarly to a utility. This approach has secured it several LNG-to-power contracts at relatively high prices, given the cost of electricity in its markets is usually far higher than in more developed countries. The focus on energy-insecure nations also allowed it to opportunistically secure a lucrative agreement with Brazil to provide backstop power to the country's hydro-generation, resulting in significant payments for maintaining capacity in the nation.

While these contracts address the demand side of the equation, they leave New Fortress exposed to uncertain gas supply costs. Its latest effort, called Fast LNG, is repurposing old offshore rigs for floating liquefied natural gas, or FLNG, needs. New Fortress had targeted five vessels for potential work, but only two look to actually enter service in the near term by 2026 at the Altamira site in Mexico after substantial delays and cost overruns. The first of these two entered service in the second half of 2024.

New Fortress also differs from the typical US LNG exporter in that it is more exposed to power and gas spreads than peers. As US and EU gas prices have fallen recently, its illustrative EBITDA forecasts over the next few years have declined similarly to $1.3 billion from over $5 billion.

Read more about New Fortress Energy.

Brookfield Renewable Partners/Brookfield Renewable Corp.

• Morningstar Price/Fair Value: 0.86 for BEP, 0.92 for BEPC
• Morningstar Uncertainty Rating: Medium
• Morningstar Economic Moat Rating: NA
• Forward Dividend Yield: 5.93% for BEP, 5.13% for BEPC
• Industry: Utilities—Renewable

Brookfield Renewable Partners is 14% undervalued relative to our $28.00 fair value estimate, while Brookfield Renewable Corp. is 8% undervalued relative to our $30.00 fair value estimate. This no-moat utilities stock employs an unusual structure in which it invests in assets alongside institutional investors via Brookfield private equity funds. The result is that much of Brookfield Renewable’s growth is tied to mergers and acquisitions as opposed to organic growth. Its pending acquisition of renewable developer Neoen will add to Brookfield Renewable’s battery storage opportunity set, making it one of the largest storage developers globally. Investors can get exposure to the company via its limited partnership units (BEP) or its corporate shares (BEPC).

Brookfield Renewable holds a well-diversified global portfolio of clean energy technologies assets. The company targets 12%-15% returns via a combination of organic growth and acquisitions. Brookfield takes a primarily contrarian approach to acquisitions.

Brookfield Renewable's portfolio has historically been heavily weighted toward hydro generation, but that has changed in recent years given outsize growth in wind and solar. Hydro has decreased from approximately 80%-85% of the company five years ago to approximately 50% today. We expect hydro to continue to decline as a percentage of cash flow over time, given relatively limited growth opportunities when compared with wind and solar. Solar has increased to 15%-20% of the portfolio as of 2022 and management has outlined robust growth plans expecting it to be the largest energy source in the long term.

In addition to renewable energy assets, Brookfield Renewable expanded its investment scope in 2022 to include broader energy transition asset classes. This includes novel areas, such as carbon capture, as well as traditional fossil fuel and nuclear power generation.

Brookfield Renewable’s geographic focus has historically been on North America and Latin America, but has also expanded in recent years to Europe and Asia. We expect the company to take a largely agnostic view toward geographies, opting to invest where the most attractive risk-adjusted returns are. However, the company has communicated it expects roughly 75% of its portfolio to be in developed markets with the remaining 25% in developing markets over the long term, in order to manage foreign exchange risks.

Brookfield Renewable primarily invests in assets alongside Brookfield Asset Management’s private equity funds. This approach brings the benefit of increased scale, allowing the company to pursue larger opportunities, but results in frequent acquisitions and disposals. Management seeks to add value through aggressive cost and revenue optimization. The company was historically primarily an acquirer of operating assets, but has added development capabilities in recent years.

Read more about Brookfield Renewable Partners/Brookfield Renewable Corp.

Essential Utilities

• Morningstar Price/Fair Value: 0.91
• Morningstar Uncertainty Rating: Low
• Morningstar Economic Moat Rating: Narrow
• Forward Dividend Yield: 3.33%
• Industry: Utilities—Regulated Water

The only water provider on our list of affordable utilities stocks, Essential Utilities looks 9% undervalued compared with our $43.00 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 a similar rate 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. The gas business has become a critical source of growth as municipal water acquisitions have slowed recently.

Although water conservation has reduced demand for several decades, Essential has increased earnings and the dividend by replacing and upgrading old infrastructure. Similarly, Peoples Gas 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 US, 85% of the population is served by a municipal water utility, offering a long runway of acquisition growth opportunities. Tighter environmental standards, particularly involving per- and polyfluoroalkyl substances, 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 $100 million of water acquisitions annually.

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.

Read more about Essential Utilities.

Evergy

• Morningstar Price/Fair Value: 0.92
• Morningstar Uncertainty Rating: Low
• Morningstar Economic Moat Rating: Narrow
• Forward Dividend Yield: 4.30%
• Industry: Utilities—Regulated Electric

The first electrical entry on our list of the best utilities stocks to buy now, 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 dividend stock currently looks 8% 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 what we think will be $13 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 will continue throughout 2024.

Kansas, which represents about half of Evergy’s total asset base, also presents regulatory challenges although recent legislation will help reduce regulatory lag. Kansas regulators have supported renewable energy investment for many years. A rate settlement in late 2023 was mostly constructive.

Evergy’s extensive transmission network, which could top 15% of its asset base in the coming years, benefits from favorable federal regulation.

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.

Read more about Evergy.

Eversource Energy

• Morningstar Price/Fair Value: 0.93
• Morningstar Uncertainty Rating: Low
• Morningstar Economic Moat Rating: None
• Forward Dividend Yield: 4.22%
• Industry: Utilities—Regulated Electric

Our analyst sees possibilities ahead for top electric provider Eversource as it executes the deals to eliminate most of its offshore wind exposure. The move will save about $2 billion of new equity needs during the next five years. Eversource raised its dividend to $2.86 per share annualized for 2024, maintaining a string of 6% dividend increases that we think can continue for several more years. This undervalued dividend utilities stock looks 7% undervalued compared with our $73.00 fair value estimate.

Eversource Energy has returned to its roots as a mostly rate-regulated distribution utility in the Northeast after exiting a multiyear effort to help develop the first round of large offshore wind projects in the US.

Clean energy goals in the Northeast create ample growth opportunities for Eversource's distribution utilities to integrate renewable energy and reduce energy costs. However, some state regulators have been stingy due to high customer rates, limiting the upside for shareholders.

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We assume Eversource invests $18 billion in 2024-27 at its electric and gas utilities to help meet regional clean energy targets and strengthen the grid. This should support 6% annual average earnings and dividend growth at least through 2026.

Eversource was one of the first U.S. utilities to pursue offshore wind development, but management reversed course in 2022 and took nearly $2 billion of impairment charges after tax in 2023. Despite the losses, Eversource will avoid potential cost overruns by exiting its 50% stake in three projects. This gives Eversource more flexibility to fund its transmission and distribution growth projects that earn a steady regulated return.

Challenging rate regulation in Connecticut is a wild card that could affect Eversource's growth plans in the state. If management doesn't see a clear path to earning a fair return on its investments, it might shift investment to other states in its service territory.

Massachusetts remains an attractive area for investment with constructive regulation, support for grid modernization investments, and ambitious clean energy legislation. Almost all of Eversource's revenue is decoupled from usage, supporting consistent cash flow growth.

Electric transmission also remains a key earnings growth driver. Eversource has been investing more than $1 billion per year in transmission since 2021 and we expect that investment rate to continue. Transmission earnings already are 40% of consolidated earnings and that share could climb. Transmission to connect offshore wind projects is a growth opportunity.

Read more about Eversource Energy.

The AES Corp

• Morningstar Price/Fair Value: 0.93
• Morningstar Uncertainty Rating: Medium
• Morningstar Economic Moat Rating: None
• Forward Dividend Yield: 4.08%
• Industry: Utilities—Diversified

AES operates energy generation assets in more than 15 countries. This affordable utilities stock is seeing significant data center opportunities at its regulated utility and renewable energy development subsidiaries. AES has signed agreements for new data center load, as well as numerous renewable energy development contracts with technology data centers. This undervalued dividend stock looks 7% undervalued compared with our $18.00 fair value estimate.

AES has narrowed its geographic and business focus by selling businesses in markets where the company did not have a strong platform or competitive advantage. We think his strategy has been in the best interest of shareholders. The company now has operations in fewer countries, a stronger balance sheet, and a rapidly growing renewable energy business.

Management expects earnings to grow 7% to 9% annually. We expect AES to achieve the midpoint of this range. Growth should be supported by continued development of the company’s renewable energy backlog and growth at the company’s regulated utilities.

The company is focusing more on its US operations. The share of earnings from the US has climbed to over 50%. The moaty US businesses have more stable cash flows and should experience a tailwind from renewable energy growth during the next decade. AES is focusing its renewable energy investments in the US, where the focus of the company’s backlog is located. Longer term, the company sees over 66 gigawatts of project development potential, weighted toward wind and solar in the U.S.

The company’s US utilities have constructive regulation, and the company has capital investment growth plan that we think will continue to receive regulatory support. In Ohio, the company is investing to support grid modernization and network upgrades. In Indiana, the unit is seeking to convert coal generation to natural gas and add renewable energy.

The AES Next portfolio includes numerous investments in emerging energy companies. The company’s largest and most high profile was Fluence, a battery storage joint venture with Siemens that went public in late 2021. AES was also an early investor in Uplight, which provides energy providers with solutions to meet their decarbonization goals.

In 2023, management announced plans to invest in a $4 billion green hydrogen production facility in Texas, in conjunction with Air Products, to be completed in 2027. While we don’t expect hydrogen to move the needle in the near term, it could be a meaningful long-term growth area for AES.

Read more about The AES Corp.

NiSource

• Morningstar Price/Fair Value: 0.95
• Morningstar Uncertainty Rating: Low
• Morningstar Economic Moat Rating: Narrow
• Forward Dividend Yield: 3.19%
• Industry: Utilities—Regulated Gas

Even though top utilities stock NiSource trades at a similar valuation as its peers, we think it has a superior runway of growth and deserves to trade at a premium. Its transition from fossil fuels to clean energy in the Midwest supports at least a decade of faster growth than the U.S. utilities sector average. We expect dividend growth to remain near 6% with a payout ratio around 60% for at least the next three years. This undervalued dividend stock looks 5% undervalued compared with our $35.00 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 what we think could be $17 billion of more of capital investment 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.

Read more about NiSource.

Portland General Electric

• Morningstar Price/Fair Value: 0.95
• Morningstar Uncertainty Rating: Low
• Morningstar Economic Moat Rating: Narrow
• Forward Dividend Yield: 4.12%
• Industry: Utilities—Regulated Electric

We close our list of the best utilities stocks to buy now with Portland General Electric. PGE is the only firm on our list that lands in the small blend 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. Shares of this dividend stock look 5% undervalued compared with our $51.00 fair value estimate.

With its expanding customer base, clean energy requirements, and increasingly supportive regulation, Portland General Electric continues to find plenty of growth opportunities.

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. The company is on track to average $1.2 billion of capital investment during the next five years, more than 20% above its investment rate during the last decade. The new investments include large projects such as a $200 million operations center, the $415 million Clearwater wind project, and $400 million in battery storage.

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 support from many stakeholders. This comes after less favorable regulatory outcomes in 2015 and 2016. The 2023 settlement also includes initial steps to reduce volatility due to PGE’s power price exposure, unusual among US-regulated utilities. The 2025 general rate case will be another regulatory test.

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 dividend growth will trail earnings growth slightly while PGE goes through this large investment cycle.

Read more about Portland General Electric.

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.
• Stay up to date on the utilities sector’s performance, key earnings reports, and more with Morningstar’s utilities sector page.
• Use the Morningstar Investor screener to build a shortlist of utilities stocks to research and watch.
• Read the latest news about notable utilities stocks from Morningstar’s lead utilities analysts Andrew Bischof and Travis Miller.