With rising energy demand fueled by industrial expansion, data centers, and electric vehicles, utility stocks present a reliable option for safe, steady returns. Backed by substantial investments in renewable energy and the stability of essential services like heat and electricity, the utility sector is well-positioned for promising growth.
Hence, investors looking for safe, steady returns could consider investing in strong utility stocks like Brookfield Infrastructure Corporation (BIPC), Pampa Energía S.A. (PAM), and TransAlta Corporation (TAC).
Global clean energy initiatives and substantial investments in solar and wind power support the sector’s long-term growth, making utility stocks a stable investment. Notably, U.S. electricity demand is projected to grow by 2.5% in 2024, with steady 1% annual growth through 2026, driven by electrification and data center expansion, which will contribute over one-third of this increase.
As utilities shift away from fossil fuels, they are poised for more stable costs and improved profits. Expected interest rate cuts and favorable regulatory changes add to this optimism. Additionally, investments in gas liquefaction, export terminals, and methane reduction further strengthen the sector. The global utilities market is projected to grow 6.8% annually, reaching $8.31 trillion by 2027.
Furthermore, with lower volatility and strong dividends, utilities remain a promising choice amid economic fluctuations. Considering these conducive trends, let’s analyze the fundamental aspects of the three utility picks.
Brookfield Infrastructure Corporation (BIPC)
BIPC and its subsidiaries own and operate regulated natural gas transmission systems in Brazil. The company also engages in regulated gas and electricity distribution operations in the United Kingdom and electricity transmission and distribution and gas distribution in Australia.
In terms of the trailing-12-month Return on Total Capital, BIPC’s 12.21% is 201.8% higher than the 4.04% industry average. Likewise, its 36.76% trailing-12-month net income margin is 181.9% higher than the 13.04% industry average. Furthermore, the stock’s 82.31% trailing-12-month EBITDA margin is 125% higher than the 36.58% industry average.
BIPC pays an annual dividend of $1.62, which translates to a yield of 3.72% at the current share price. Its four-year average dividend yield is 3.53%. Its dividend payouts have increased at a CAGR of 6% over the past three years. BIPC has paid dividends for the past three years.
For the fiscal second quarter ended June 30, 2024, BIPC’s total revenue rose 68.8% year-over-year to $908 million. The company’s net income was $643 million, compared to a net loss of $154 million in the same quarter last year. Additionally, BIPC’s cash from operating activities was $511 million, up 92.8% from the prior-year quarter.
For the quarter ended September 30, 2024, BIPC’s FFO is expected to increase 5.5% year-over-year to $0.77. Its revenue for fiscal 2024 is expected to increase 22.9% year-over-year to $19.05 billion. Over the past year, the stock has gained 48.9% to close the last trading session at $43.57.
BIPC’s robust fundamentals are reflected in its POWR Ratings. It has an overall rating of B, equating to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
BIPC has a B grade for Growth, Momentum, and Quality. Within the Utilities – Domestic industry, it is ranked first out of 59 stocks. To see BIPC’s ratings for Value, Stability, and Sentiment, click here.
Pampa Energía S.A. (PAM)
Based in Buenos Aires, Argentina, PAM operates as an integrated power company. It has four segments: Electricity Generation, Oil and Gas, Petrochemicals, and Holding and Other Businesses. The company generates electricity through thermal plants, hydroelectric plants, and wind farms, with an installed capacity of 5,332 megawatts (MW).
In terms of the trailing-12-month net income margin, PAM’s 23.95% is 83.7% higher than the 13.04% industry average. Likewise, its 10.94% trailing-12-month Return on Total Capital is 170.5% higher than the 4.04% industry average. Furthermore, the stock’s 0.69x trailing-12-month asset turnover ratio is 217.8% higher than the 0.22x industry average.
PAM’s sales revenue for the fiscal second quarter, which ended June 30, 2024, grew 304.6% year-over-year to AR$446.41 billion ($453.41 million). The company’s gross profit reached AR$174.17 billion ($176.90 million), reflecting a 305.6% increase from the prior year.
Additionally, its net income attributable to company owners and net income per ADR to shareholders were AR$90.06 billion ($91.47 million) and AR$1,655.50 per share, respectively, up 113.5% from year-ago values.
Street expects PAM’s revenue for the quarter ended September 30, 2024, to increase 31.5% year-over-year to $573.55 million. Its EPS for fiscal 2024 is expected to grow 925.1% year-over-year to $7.65. Over the past year, the stock has gained 74.6% to close the last trading session at $68.65.
PAM’s POWR Ratings reflect strong prospects. It has an overall rating of B, which translates to a Buy in our proprietary system.
It is ranked #15 out of 50 stocks in the B-rated Utilities – Domestic industry. It has a B grade for Momentum. Click here to see PAM’s ratings for Growth, Value, Stability, Sentiment, and Quality.
TransAlta Corporation (TAC)
Headquartered in Calgary, Canada, TAC engages in the development, production, and sale of electric energy. It operates through the Hydro, Wind and Solar, Gas, Energy Transition, and Energy Marketing segments.
In terms of the trailing-12-month asset turnover ratio margin, TAC’s 0.35x is 61.5% higher than the 0.22x industry average. Likewise, its 19.50% trailing-12-month net income margin is 49.5% higher than the 13.04% industry average. Furthermore, the stock’s 81.91% trailing-12-month Return on Common Equity is 752.7% higher than the 9.61% industry average.
TAC’s annualized dividend of $0.17 per share translates to a dividend yield of 1.71% on the current share price. Its four-year average yield is 1.73%. Over the past five TAC’s dividend payments have grown at CAGRs of 7%.
In the second quarter ended June 30, 2024, TAC reported revenues of C$582 million ($310.15 million) and an adjusted EBITDA of C$312 million ($225.49 million). For the same period, net earnings attributable to common shareholders were C$56 million ($40.47 million), or C$0.18 per share.
Analysts expect TAC’s FFO for fiscal 2025 to increase marginally year-over-year to $2.18. Over the past nine months, the stock has gained 52.9% to close the last trading session at $10.12.
TAC’s positive outlook is reflected in its POWR Ratings. It has an overall rating of A, equating to a Strong Buy in our proprietary rating system.
It has an A grade for Quality and a B for Value, Momentum, and Sentiment. It is ranked #4 in the Utilities - Foreign industry. Click here to see TAC’s ratings for Growth and Stability.
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BIPC shares were trading at $43.33 per share on Friday afternoon, down $0.24 (-0.55%). Year-to-date, BIPC has gained 28.66%, versus a 23.05% rise in the benchmark S&P 500 index during the same period.
About the Author: Abhishek Bhuyan
Abhishek embarked on his professional journey as a financial journalist due to his keen interest in discerning the fundamental factors that influence the future performance of financial instruments.
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