Although the Federal Reserve signaled a potential end to its hiking cycle, the recent events in the past few weeks have induced a fresh bout of volatility in the markets. Therefore, investors could consider adding utility stocks such as ONEOK, Inc. (OKE), Brookfield Infrastructure Corporation (BIPC), and Genie Energy Ltd. (GNE), which have gained significant momentum lately.
Fresh fears over the stability of the U.S. financial sector tormented markets following the collapse of First Republic Bank, on concerns that the crisis could mount and spread to other midsized banks.
As investors reel under fears of the economy slipping into a recession, the Fed increased its interest rates by 0.25 percentage points, taking the funds rate to a target range of 5%-5.25%. Also, it dropped a tentative hint that its current tightening cycle is nearing its end.
With volatility gripping the markets, investing in utility stocks could help add a defensive layer to your portfolio. As utilities are a necessity, companies in this sector are often resilient in a tumultuous market situation.
Many utilities are regulated by federal or municipal governments, making them potentially more stable than other sectors. Moreover, the sector’s upswing is evident from the Utilities Select Sector SPDR Fund ETF’s (XLU) 2.9% gains over the past six months.
Additionally, the world’s largest gas buyer foresees another potential surge in LNG prices, stemming from the rising import capacity in Europe and China combined with potential severe weather risks.
At the same time, advanced economies are pushing for electrification to decarbonize their transportation, heating, and industrial sectors. As a result, global electricity demand is expected to grow by 3% per annum over the 2023-2025 period.
Thus, for those looking to hedge against market uncertainty this year, the three utility stocks below have topped the sector with regard to fundamental strength, industry outlook, and strong momentum.
ONEOK, Inc. (OKE)
OKE is a midstream service provider of natural gas and Natural Gas Liquids (NGL) and owns an extensive network of gathering, processing, fractionation, transportation, and storage assets in the United States. It operates through three segments: Natural Gas Gathering and Processing; Natural Gas Liquids; and Natural Gas Pipelines segments.
On April 20, the company declared a quarterly dividend of 95.5 cents per share, payable to its shareholders on May 15, 2023. OKE’s four-year average dividend yield is 7.35%, while its annual dividend of $3.82 per share translates to a 5.92% yield on prevailing prices. Its dividend has grown at a 4.4% CAGR over the past five years.
On May 2, Pierce H. Norton II, OKE’s president and chief executive officer, stated, "The successful completion of our Demicks Lake III natural gas processing plant and MB-5 fractionator projects provide additional system capacity and resiliency, and are examples of our continued focus on intentional and disciplined growth.”
Further, he believes that with significant balance sheet strength and flexibility, the company remains well-positioned to support continued growth.
For the fiscal first quarter that ended on March 31, 2023, OKE’s operating income increased 126.1% year-over-year to $1.50 billion. Its net income improved 168.3% year-over-year to $1.05 billion, while its EPS came in at $2.34, up 168.9% from its year-ago period. In addition, its adjusted EBITDA increased 98.7% year-over-year to $1.72 billion.
For the second quarter (ending June 30, 2023), OKE’s EPS is expected to increase 8.9% year-over-year to $1, while its revenue is expected to amount to $5.24 billion in the same period. It surpassed the consensus EPS estimates in each of the trailing four quarters, which is excellent.
Over the past three years, the stock’s revenue and net income grew at CAGRs of 31.1% and 43.9%, respectively. Moreover, its EPS improved at a CAGR of 40.3% over the same period.
Shares of OKE have gained 10.2% over the past nine months to close the last trading session at $64.51. It is trading higher than its 100-day moving average of $63.20, indicating an uptrend.
OKE’s POWR Ratings reflect its solid prospects. The company has an overall rating of B, translating to Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It has a B grade for Momentum. Among the 64 stocks in the Utilities - Domestic industry, it is ranked #3. To see the other ratings of OKE for Growth, Value, Stability, Sentiment, and Quality, click here.
Brookfield Infrastructure Corporation (BIPC)
BIPC, a subsidiary of Brookfield Infrastructure Partners L.P. (BIP), is engaged in the ownership and operation of regulated gas transmission systems in Brazil and of regulated distribution operations in the United Kingdom, as well as electricity transmission and distribution, and gas distribution in Australia.
On May 3, the board of directors of BIPC declared a quarterly distribution in the amount of $0.3825 per unit, payable on June 30, 2023. Its four-year average dividend yield is 2.84%, while its annual dividend of $1.53 per share translates to a 3.53% yield on the current prices.
On April 12, BIPC announced its intention to acquire 100% of the common equity of Triton International Limited (TRTN) for $85 per share in a take-private transaction, equating to an enterprise value of $13.3 billion. This transaction is expected to provide BIPC with a high going-in cash yield, strong downside protection, and a platform for growth in the transportation and logistics sector.
BIPC’s revenue increased 23.7% year-over-year to $4.22 billion in the first quarter that ended March 31, 2023. Its consolidated funds from operations grew 7.5% from the year-ago value to $1.14 billion. The company’s FFO increased 12.4% and 12.5% from the prior-year quarter to $554 million and $0.72 per unit, respectively.
Analysts expect BIPC’s FFO to increase 13.4% year-over-year to $0.76 in the second quarter ending June 2023. Its FFO and revenue are expected to reach $3.08 and $15.49 billion, representing a 13.7% and 7.4% year-over-year increase, respectively, in the fiscal year 2023.
Over the past three years, BIPC’s net income and EPS grew at 63.7% and 39.3% CAGRs, respectively. Its EBIT grew at an 8.5% CAGR over the same period.
BIPC has gained 11.4% year-to-date to close the last trading session at $43.33, higher than its 10-day moving average of $42.54.
It is no surprise that BIPC has an overall rating of B, which translates to a Buy in our proprietary rating system. It also has a B grade for Momentum, Stability, and Quality. Within the same industry, it is ranked first.
In addition to the POWR Ratings I’ve just highlighted, you can see the BIPC ratings for Growth, Value, and Sentiment here.
Genie Energy Ltd. (GNE)
GNE and its subsidiaries supply electricity and natural gas to residential and small business customers internationally. It has three operational segments: Genie Retail Energy (GRE); GRE International; and Genie Renewables.
On April 18, GNE announced that it had started construction of a four-megawatt community solar array in Perry, NY. The project is expected to generate over 5,000 MWh annually, sufficient to power over 440 homes while offsetting over 3,500 metric tons of carbon emissions.
The completion of the Perry solar array could attract more customers and investors, thereby generating higher revenues and profits for GNE in the long run. Additionally, it reflects the company’s commitment to expanding its renewable energy portfolio and contributing towards a greener future.
The company’s four-year average dividend yield is 2.87%, while its annual dividend translates to a 1.96% yield on prevailing prices. It paid a quarterly dividend of $0.075 per share on March 1, 2023.
During the fiscal fourth quarter that ended December 31, 2022, GNE’s total revenue increased 17.6% year-over-year to $81.40 million. The company’s income from operations improved 167.2% from the prior-year quarter to $15.50 million, while its adjusted EBITDA rose 153.4% from the year-ago quarter to $18.50 million.
Also, net income attributable to GNE common stockholders and EPS came in at $16.20 million and $0.61 in the same period.
GNE’s EBITDA and EBIT grew at CAGRs of 79.6% and 98.4%, respectively, over the past three years. Moreover, its net income improved at a CAGR of 176% over the same period.
The stock has gained 137.1% over the past year to close the last trading session at $15.34, higher than its 50-day and 200-day moving averages of $13.42 and $10.96, respectively.
GNE’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, translating to Buy in our proprietary rating system.
It has a B grade for Value and Momentum. Out of 64 stocks in the same industry, it is ranked #2. To see GNE’s ratings for Growth, Stability, Sentiment, and Quality, click here.
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OKE shares were trading at $63.39 per share on Monday afternoon, down $1.12 (-1.74%). Year-to-date, OKE has declined -0.72%, versus a 8.16% rise in the benchmark S&P 500 index during the same period.
About the Author: Shweta Kumari
Shweta's profound interest in financial research and quantitative analysis led her to pursue a career as an investment analyst. She uses her knowledge to help retail investors make educated investment decisions.
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