Best utilities stocks

Utility stocks may not be a glamorous investment, but they can provide steady returns, especially when the markets are turbulent.

History has shown that utility stocks tend to outperform when the economy is going through a downturn, so they can be a good way to protect your portfolio against a recession. But they can also underperform when the economy is growing.

What are the best utilities stocks?

The best utility stocks for you will depend on the level of risk you’re prepared to take on and what else you’re invested in. It’s important to weigh up the pros and cons of any investment before you buy.

To create a list of the best utilities stocks, we’ve used data from the S&P Global 1200 Utilities sector index, which many utility funds use as a benchmark.

Stock	Icon	1 year performance (January 2024)	5 year performance (January 2024)	Link to invest
Constellation Energy (CEG)		38.30%	156.36%	Invest with XTBCapital at risk
Enel SpA (ENLAY)		21.90%	28.46%	Invest with XTBCapital at risk
Iberdrola (IBE)		8.41%	73.52%	Invest with XTBCapital at risk
National Grid (NGG)		4.04%	33.64%	Invest with XTBCapital at risk
Southern (SO)		1.89%	53.58%	Invest with XTBCapital at risk
Sempra (SRE)		-0.37%	+33.19%	Invest with XTBCapital at risk
Duke Energy (DUK)		-4.62%	16.40%	Invest with XTBCapital at risk
American Electric Power (AEP)		-11.08%	12.02%	Invest with XTBCapital at risk
Exelon (EXC)		-15.80%	10.29%	Invest with XTBCapital at risk
NextEra Energy (NEE)		-25.21%	40.68%	Invest with XTBCapital at risk

What are utilities stocks?

Utility companies supply homes and businesses with electricity, gas and water. Some companies are also responsible for generating electricity, while others maintain the infrastructure, such as the sewage system or the power lines.

One way of investing in utilities companies is by buying shares in them — or by investing in a fund that buys utility stocks on your behalf. To be classed as a utilities stock, the company must fall within the GICS “utilities” sector.

Types of utilities stocks

Utilities stocks tend to fit into the categories listed below, though some companies might be involved in all 3:

• Producers. These companies generate the energy we use, either from fossil fuels or from renewable sources like wind farms.
• Distributors. Firms responsible for supplying energy and water to homes and businesses, while making sure that the supply matches the demand.
• Maintenance. Companies that develop and maintain the energy, water and sewage networks.

How to invest in utilities stocks

1. Open a share dealing platform. You will need to open a share trading account to buy utilities stocks or investment funds.
2. Fund your account. Then deposit money into your share trading account, which you can do by bank transfer or with a debit card.
3. Choose your utilities stocks. Once you’ve added funds, you’ll be able to select stocks or funds to buy. Make sure you do your research before committing to an investment.
4. Hit buy. It’s as simple as that.

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Why do people want to invest in utilities stocks?

Utility stocks tend to be a reliable investment, particularly when times are tough as they can outperform when other sectors struggle.

Investors often adopt a long-term buy-and-hold strategy for utilities stocks — plus, they often pay dividends, so they can be a good option for income seekers. Even the best dividend stocks don’t mean a guaranteed income, but they can provide a relatively reliable stream of regular payments.

Benefits of investing in utilities stocks

Here’s a rundown of the main advantages of investing in utilities stocks:

• Stability of demand. One of the main advantages of investing in utility stocks is that during economic uncertainty, they can often outperform other sectors. This is because, even if people have less money in their pockets, everyone still needs access to basic amenities like energy and water.
• Dividends. The stable nature of these companies means that many are able to afford consistent dividend payments to shareholders.
• Lower price volatility. Energy use tends to be relatively predictable which means these stocks can be less volatile than businesses in other sectors.

Risks of investing in utilities stocks

As with all investments, there are risks to consider when thinking of buying utilities stocks:

• Regulation. The energy and water sectors are heavily regulated — if the rules change then this can affect business operations.
• Controls and price caps. In the UK, energy regulator Ofgem introduced the energy price cap in 2019, which set limits on how much energy suppliers could charge their customers. But when wholesale energy prices rose in 2021, suppliers weren’t able to pass on the full increase to customers and some businesses collapsed as a result.
• Changing energy sources. As countries around the world become focused on reducing fossil fuel consumption and water pollution, many energy and water companies will have to adjust, which could affect their bottom line.

Expert comment - What’s the best way to get exposure to utilities stocks?

George Sweeney

Deputy editor

Outside of researching individual stocks to buy, ETFs are a great way to get passive exposure to utilities. With the iShares S&P 500 Utilities Sector ETF (IUUS), you can use it as an investment to track US utility stocks. Or if you want to stay closer to home, the iShares STOXX Europe 600 Utilities ETF (DE) invests in European utilities.

If you don’t want a passive approach, you might want to check out a fund or investment trust like the Ecofin Global Utilities & Infrastructure Trust (EGL), for example.

Alternative ways to invest in utilities stocks

To invest in utility stocks, you don’t have to buy shares directly and you could opt for a managed investment fund or a passive exchange-traded fund (ETF) instead. Funds are collective investment schemes where investors’ money is pooled together and the fund manager buys and sells stocks on their behalf.

Some investment funds will allocate a proportion of investor money to this sector (the fund factsheet should outline the percentage that is invested in each).

But you can also find funds that invest purely in utilities stocks — some of these are managed by a fund manager who makes active investment decisions. But you can also invest in ETFs or index funds that track the performance of utilities stocks based on industry benchmarks. Passive funds like ETFs tend to be cheaper compared to actively managed ones.

Pros and cons

Bottom line

Utilities stocks can be an important ingredient in a diversified investment portfolio, providing a buffer against turbulent markets — just don’t expect mind-blowing returns.

Make sure you’ve got a mix of companies across this sector, ranging from energy to water, in case regulatory changes have a detrimental impact on a whole group of businesses.

Frequently asked questions

• Are utilities stocks a good investment?

  They can be, but it depends on the individual stock and your investing style. The future prospects of every company will be different, so it’s important to do your research to understand the pros and cons of each utility stock. And, make sure you understand the risks associated with the wider sector too.

• Which is the best power stock to buy?

  We can’t tell you what is the best energy stock to buy because this will depend on your goals as an investor and what else is in your portfolio. But you might want to consider some of the larger power stocks listed in the table above as a starting point.

• How do utility stocks do in a recession?

  Utility stocks tend to perform well during a recession. During the financial crisis of 2008, utilities companies outperformed while the rest of the market collapsed.

  More recently, during the 2020 recession, the MSCI UK Utilities index fell 4%, compared to a drop of 13% for the rest of the UK market. As utility stocks can offer some protection against a downturn, they are often seen as a solid defensive piece in an investment portfolio.

To make sure you get accurate and helpful information, this guide has been edited by George Sweeney, DipFA as part of our fact-checking process.

Written by

Katherine Denham

Writer

Katherine Denham is a freelance journalist, writer and consumer champion, specialising in personal finance. She has written for The Times since 2019. She also has bylines in The Sunday Times, Times Money Mentor, City A.M. and a number of financial trade publications. When she’s not working she can be found hiking and drawing pictures of her tortoise. See full bio

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