In addition to health concerns, global economic uncertainty has so far been one of the consequences of the pandemic in 2020. Many consumers have cut back on their spending. But one expense that most of us can't cut back on is energy bills.
So we'll look at two utility companies that investors may want to keep on their shopping list. They are United Utilities (LON 🙂 (OTC 🙂 and SSE (LON 🙂 (OTC :).
Investors Prefer Company Stocks
Many market participants consider utility companies to be recession-proof. Passive income seekers also prefer these companies as they typically pay out stable and juicy dividends. The lowest interest rates mean that dividend-paying stocks are increasingly important to many long-term portfolios.
The second wave of the new coronavirus continues to affect many countries, including the UK. According to a recent study by Imperial College London and Ipsos MORI:
"An estimated 128 people per 10,000 of the UK population have the virus that causes COVID-19, compared to 60 on October 5. This equates to 96,000 new infections per day."
In other words, the British, like billions of citizens of the world, could prepare for a long winter indoors. In that case we can expect that the consumption of electricity, gas and water will remain at a high level. With that information, let's take a look at two stocks worth considering.
United Utilities 1-Year Chart
United Utilities
United Utilities, based in the United Kingdom, provides water and sewage services to the North West of England. The customer base consists of approximately 7 million people who provide a relatively resilient business model.
In late September, the group released a trading update ahead of its half-year results, scheduled for November 25. Despite the pandemic, overall activities are in line with expectations for the full year 2020/21.
So far in the year, the UU stock has fallen about 7%. On October 29, it closed at 859.80p ($ 22.5 for US stocks). The current share price supports a 4.92% dividend yield. Forward P / E and P / S ratios are 19.80 and 3.20, respectively. We would consider buying the dips in UU shares.
SSE
The focus of SSE is on regulated electricity grids and renewable sources of electricity. In June 2019, the UK became the first major economy to legislate for "net zero" emissions by 2050.
SSE wants to lead the "green economic recovery" and reduce all greenhouse gas emissions to zero. For example, it is currently building the world's largest wind farm at Dogger Farm, off the east coast of Yorkshire.
On September 30, the group published a trade statement ahead of the half-year results to be published on November 18. The group's profit from renewable energy sources represents more than a third of its current profit. The group plans to increase the percentage in the coming quarters. Management has also worked to keep net debt levels under control.
Year-to-date, the stock is down about 12%. On October 29, SSE shares closed at 1,250p ($ 16.28 for US-resident shares). The current dividend yield is 6.27%. Forward P / E and P / S ratios are 18.55 and 1.94, respectively. We love the stock because SSE is a robust investment in the future of renewable energy in the UK.
Bottom Line
As we enter the last quarter of the year, investors' risk appetite remains slow, while volatility in many markets remains high. Investors interested in exchange-traded funds (ETFs) with a focus on utility stocks may also want to research the following funds:
Utilities Select Sector SPDR® Fund (NYSE 🙂
iShares Global Utilities ETF (NYSE 🙂
John Hancock Multifactor Utilities ETF (NYSE 🙂
Vanguard Utilities Index Fund ETF Shares (NYSE 🙂
Finally, investors interested in alternative energy sources may find the following ETFs attractive:
Invesco Solar ETF (NYSE 🙂
First Trust NASDAQ® Clean Edge® Green Energy Index Fund (NASDAQ 🙂
VanEck Vectors Low Carbon Energy ETF (NYSE 🙂
We intend to return to the subject in the coming weeks.
