The Best Utilities Stocks to Buy

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 is outperforming the Morningstar US Market Index, 12.31% to 10.21%.

Are Utilities Stocks a Good Investment Today?

Morningstar energy and utilities strategist Travis Miller sees reasons for confidence, saying: “The Morningstar Utilities Sector Index is up about 30% from its low in October in part due to the data center excitement and in part due to the market’s anticipation of lower interest rates. Utilities stocks tend to rise when interest rates fall because of their higher dividend yields relative to the market. Currently, we consider US utilities fairly valued, up from 16% undervalued in October.”

Utilities stocks typically offer sizable dividend yields and, as a group, look fairly valued 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 May 30, 2024.

1. Evergy EVRG
2. NiSource NI
3. WEC Energy Group WEC
4. Essential Utilities WTRG
5. Alliant Energy LNT
6. Portland General Electric POR
7. Entergy ETR
8. Xcel Energy XEL
9. FirstEnergy FE
10. Duke Energy DUK

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 May 30, 2024.

Evergy

• Morningstar Price/Fair Value: 0.81
• Morningstar Uncertainty Rating: Low
• Morningstar Economic Moat Rating: Narrow
• Forward Dividend Yield: 4.89%
• Industry: Utilities—Regulated Electric

Heading 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 19% 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.

NiSource

• Morningstar Price/Fair Value: 0.82
• Morningstar Uncertainty Rating: Low
• Morningstar Economic Moat Rating: Narrow
• Forward Dividend Yield: 3.82%
• 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 US 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 18% undervalued compared with our $34.00 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.

WEC Energy Group

• Morningstar Price/Fair Value: 0.82
• Morningstar Uncertainty Rating: Low
• Morningstar Economic Moat Rating: Narrow
• Forward Dividend Yield: 4.23%
• Industry: Utilities—Regulated Electric

Trading 18% below our fair value estimate of $96.00, WEC Energy combines best-in-class management and above-average growth opportunities supported by constructive regulation across most of its jurisdictions. The company’s new five-year capital investment plan totals $23.7 billion, a $3.6 billion increase from its prior plan. WEC also targets a 65%-70% dividend payout ratio.

WEC Energy Group is the largest Midwest utility, with approximately $29 billion of rate base and derives most of its earnings derived from regulated operations. Nearly 75% of earnings come from areas with 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 $23.7 billion of capital through 2028, 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’. The company’s most recent rate outcome is consistent with our view that Wisconsin remains a very constructive regulatory environment for utilities. We expect the utility to file for new rates in 2024.

The company is moving aggressively on its renewable energy investment plan. It targets investing $7.0 billion for 3.8 gigawatts of new solar, battery storage, and wind generation development through 2028. The company plans to retire 1,700 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 its capital investment program in large part to support estimated 4.5%-5.0% annual electricity demand growth from 2026 to 2028. New demand is coming from 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.

Essential Utilities

• Morningstar Price/Fair Value: 0.84
• Morningstar Uncertainty Rating: Low
• Morningstar Economic Moat Rating: Narrow
• Forward Dividend Yield: 3.42%
• Industry: Utilities—Regulated Water

The only water stock on our list of the cheapest utilities stocks, Essential Utilities looks 16% 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.

Alliant Energy

• Morningstar Price/Fair Value: 0.85
• Morningstar Uncertainty Rating: Low
• Morningstar Economic Moat Rating: Narrow
• Forward Dividend Yield: 3.89%
• Industry: Utilities—Regulated Electric

Next on our list of the best utilities stocks to buy now is Alliant Energy. Our analyst sees growth opportunities ahead for the company 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 a 15% discount to our fair value estimate of $58.00.

We expect Alliant Energy to invest over $11 billion from 2024-28, supporting our expectation that the company will achieve the top half of management’s 5%-7% growth target. Management estimates continued significant capital investment opportunities in the second half of the decade, supporting growth beyond our forecast.

Interstate Power and Light 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 as 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 to 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, supporting our constructive view of the region. IPL expects a decision on its rate review later this year.

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.

Portland General Electric

• Morningstar Price/Fair Value: 0.86
• Morningstar Uncertainty Rating: Low
• Morningstar Economic Moat Rating: Narrow
• Forward Dividend Yield: 4.68%
• Industry: Utilities—Regulated Electric

Portland General Electric is the only firm on our list of affordable utilities stocks 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 14% undervalued compared with our $50.00 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.

Entergy

• Morningstar Price/Fair Value: 0.87
• Morningstar Uncertainty Rating: Low
• Morningstar Economic Moat Rating: Narrow
• Forward Dividend Yield: 4.24%
• Industry: Utilities—Regulated Electric

Next on our list of the best utilities stocks to buy now, Entergy is 13% undervalued relative to our $123.00 fair value estimate. This top utilities stock offers one of the most attractive combinations of yield, growth, and value in the utilities sector with a dividend yield above 4% and the potential for 7% annual earnings growth. We expect future dividend increases to track slightly slower than earnings growth.

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

We expect Entergy to invest nearly $7 billion annually on average for the next five years to upgrade its electric grid and expand its clean energy portfolio. Industrial customers, which represent about half of Entergy’s customer base, generally support these investments in reliability and power generation with lower carbon emissions.

We forecast Entergy’s planned growth investments and customer growth will lead to annual earnings growth toward the top half of management’s 6%-8% target. Constructive regulatory outcomes could push management’s $20 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 US 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. 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 in May 2022 and transferred decommissioning responsibilities to other companies. It no longer has direct energy market exposure.

Entergy’s unique risk is severe storm activity in its Gulf Coast 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, particularly in Louisiana.

Dividend growth could trail earnings growth slightly as Entergy executes its growth investment plan.

Xcel Energy

• Morningstar Price/Fair Value: 0.89
• Morningstar Uncertainty Rating: Low
• Morningstar Economic Moat Rating: Narrow
• Forward Dividend Yield: 4.11%
• Industry: Utilities—Regulated Electric

Xcel Energy manages electric and natural gas utilities serving about 6 million customers. We expect management to stick to its 60%-70% payout target while the utility goes through its heavy capital investment years. We believe the dividend can grow at least 6% annually. This undervalued dividend stock is 11% undervalued relative to our $60.00 fair value estimate.

Xcel Energy’s regulated gas and electric utilities serve customers across eight states and own infrastructure that ranges from nuclear plants to wind farms, making the company a barometer for the entire utilities sector. That barometer is signaling a big commitment to clean energy investment nationwide.

Xcel took an early lead in renewable energy development primarily due to favorable wind conditions in the central US. The company plans to invest $34 billion in 2024-28 with as much as $10 billion of additional possible investment for renewable energy and electric grid infrastructure. We think Xcel will have opportunities to continue investing nearly $7 billion annually for the next decade to meet state clean energy requirements.

Politicians and regulators in Colorado, Minnesota, and New Mexico are pushing aggressive environmental targets, which could extend Xcel's growth investments in solar, hydrogen, and supporting infrastructure. A partnership that includes Xcel won a federal grant of up to $925 million in late 2023 to build a regional hydrogen network in the Midwest. Xcel aims to eliminate coal generation by 2030 and deliver 100% carbon-free electricity by 2050 with regulatory support.

Transmission projects to support renewable energy represent about 30% of Xcel’s investment plan, but that could go higher based on recent studies that show transmission is a constraint to meeting clean energy targets.

Xcel's investment plan gives investors a transparent runway of 6% to 7% annual earnings and dividend growth potential. However, Xcel's growth plan means more regulatory risk than its peers, particularly in Xcel's largest jurisdictions, Colorado and Minnesota, where it plans to invest at least $27 billion in 2024-28. Recent regulatory activity in those states has been challenging and could slow earnings and dividend growth, at least in the near term.

Lower energy costs have helped offset higher infrastructure charges, keeping customer bills mostly flat for several years. Regulatory support for Xcel's growth investments could wane with rising energy prices. Xcel also faces allegations that it sparked wildfires in Colorado and Texas.

FirstEnergy

• Morningstar Price/Fair Value: 0.90
• Morningstar Uncertainty Rating: Low
• Morningstar Economic Moat Rating: Narrow
• Forward Dividend Yield: 4.41%
• Industry: Utilities—Regulated Electric

FirstEnergy owns and operates one of the nation’s largest electric transmission systems. The company increased its dividend 5% in 2023, its first increase since 2020. We expect dividend growth in line with earnings growth going forward. This cheap utilities stock is 10% undervalued; we think it’s worth $43.00.

FirstEnergy’s regulated utilities are focused on accelerating investments that should result in solid earnings growth. The company expects to invest $26 billion through 2028, a 44% increase from the previous five-year capital investment plan, supporting our expectations for the company to achieve the midpoint of management’s 6%-8% annual earnings growth target.

Achieving constructive regulatory outcomes across its jurisdictions will be important to increase the regulated utilities’ returns, which remain significantly below allowed returns, and support earnings growth. A supportive outcome in Maryland, and pending settlements in New Jersey and West Virginia should help narrow the gap between earned and allowed returns. Base rate cases in Pennsylvania and Ohio will be filed in the first half of 2024.

The company has raised significant funds in the past two years to support its investment program and shore up its balance sheet. In 2022, it raised $3.4 billion, including $2.4 billion from selling a 19.9% minority stake in subsidiary FirstEnergy Transmission and $1 billion from new market equity. In early 2023, the company agreed to sell another 30% stake in FirstEnergy Transmission for $3.5 billion. We expect the transaction to close in 2024.

Proceeds from the transactions will be used to pay down debt and fund additional investment opportunities. FirstEnergy will look to strengthen the balance sheet and achieve its targeted 14%-15% funds from operations/debt ratio. Balance sheet strength has been a major focus for investors. With the proceeds from capital recylcing, FirstEnergy will be one of the few utilities that we expect won’t need to issue equity to fund its capital investment plan.

In 2021, FirstEnergy reached an agreement with the U.S. Department of Justice to settle its involvement in the 2020 Ohio bribery scheme. The company continues to work through legal settlements and open regulatory proceedings in the state. Its three Ohio distribution utilities represent less than 20% of operating earnings.

Late last year, FirstEnergy increased its dividend 5%, its first dividend increase since 2020. We expect dividend growth in line with earnings growth.

Duke Energy

• Morningstar Price/Fair Value: 0.90
• Morningstar Uncertainty Rating: Low
• Morningstar Economic Moat Rating: Narrow
• Forward Dividend Yield: 4.08%
• Industry: Utilities—Regulated Electric

We close our list of the best utilities stocks to buy with Southern powerhouse Duke Energy. After divesting its unregulated renewable energy business, Duke has a clear pathway to achieving the high end of management’s 5%-7% annual earnings growth target. We anticipate 4% average annual dividend growth, implying a 68% payout based on our 2028 earnings estimate. Duke Energy stock is priced at a 10% 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 a 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 $73 billion capital investment plan for 2024-28 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 $95 billion-$105 billion of capital expenditures helping to support future rate base growth in 2029-33.

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 used the $1 billion in proceeds to pay down holding company debt. Overall, we think Duke’s pivot to rate-regulated operations is positive for shareholders.

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.