2 utility stocks to buy before the bear market is over

Bear markets are a test for investors, noting that elevated levels of fear can lead to harmful short-term thinking. The bear is still with us, but it’s not too late to start thinking long term. The utility Dominion Energy (D 0.81%) dividend is a good option for growth-minded investors. The Peer Consolidated Edison (ED 0.80%) is suitable for investors who have a safety-first mindset.

reset and go back to development

Dominion Energy cut its dividend in 2020 after selling a large part of its pipeline to Berkshire Hathaway. It was the last step in the company’s effort to leave its non-regulated business segments and become a fully regulated utility business, not the result of the coronavirus pandemic. That time was just a coincidence. Now, following the reset, the utility company is focusing on investing in its assets to ensure the reliability of the system. An effort that also helps regulators justify rate hikes.

The numbers are huge, with a capital investment plan of about $37 billion over the next five years. About 85% of that spending is for clean energy, and 75% should slide directly into rates without being approved. In other words, there is a lot of clarity for the future in Dominion right now.

This is why management is so confident that it will be able to grow earnings of 6.5% per annum until at least 2026. This may not sound like a huge number, but for a utility, it is a very rapid development. Meanwhile, the dividend is expected to expand annually at an annual clip of 6%, well behind earnings. Again, this may not sound like a huge amount, but it’s a solid number for a utility. In particular, all spending should continue regardless of what’s happening on Wall Street. Dividend growth investors looking to add a solid foundational investment to their portfolio should take a closer look at Dominion.

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2. As boring as boring gets

Utility Consolidated Edison is on the other end of the spectrum here, with nearly five decades of annual dividend increases behind it and a 10-year annual dividend growth rate of a little less than 3%. It’s a slow and steady dividend tortoise, but it may be okay with you if reliable dividends are what you want.

A notable piece of the puzzle here is that ConEd, as it’s colloquially known, operates in and around New York City. (Dominion, by comparison, operates in 13 states.) The Big Apple is a major business hub that has historically seen consistent demand and propelled ConAd’s slow and steady dividend growth. But the most notable story right now is that the electric and natural gas utility just passes on the cost of energy to customers. Supporting its earnings are the costs associated with reliably transporting power. Economic fluctuations can affect electricity demand, but it does not change how much a customer pays each month to be connected to the grid. As ConEd invests in its business, its costs add up reliably.

Right now, ConEd has plans to spend about $15 billion over the next three years, including 2022. This doesn’t provide the kind of earnings and dividend growth potential for Dominion, but it should still provide enough growth to keep this turtle going. Its dividend streak is alive. Which, for a conservative income investor focused on creating a reliable income stream, will probably be most important. ConEd is, at the end of the day, a boring cornerstone type of investment. This is the type that will keep you safe in a bear market — note that the stock is up 11% so far in 2022.

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That price appreciation has pushed the stock to a premium valuation, so you’ll pay full price for the dividend stability here. But don’t let the relative superior performance on ConEd get you down. If dividends and security (there’s no way to know when a bear market bottom has been reached) are important to you, you might consider adding it to your portfolio, even at today’s relatively expensive prices.

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Both Dominion and Consolidated Edison are interesting income options for a variety of dividend investors. That said, Dominion and ConEd are both yielding a generous 3.4% or higher today. That may not seem like a huge number, but when you compare it to the 1.5% dividend yield you get from an S&P 500 index fund, you can see why these two utilities may be of interest today. And while there’s no way to tell when this bear will end, the two can also add some significant diversification to your portfolio.

Dominion Energy, Inc. owned by Reuben Greg Brewer. There are positions in The Motley Fool has positions and recommends Berkshire Hathaway (B Share). The Motley Fool recommends Dominion Energy, Inc. and recommends the following options: long January 2023 $200 call on Berkshire Hathaway (B Share), January 2023 $200 short call on Berkshire Hathaway (B Share), and Berkshire Hathaway (B Share). Short January 2023 $265 call on Hathway (B share). The Motley Fool has a disclosure policy.

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