There's good reason investors fear the economy could slide further into a recession and drag stocks down with it. Persistent inflation, rising interest rates, and a stumbling housing market are all worrisome indicators that we might have further to fall before we reach bottom.
That's why finding a safe haven now might make sense, and utility stocks may be your best bet. They can be the ballast for a portfolio during troubled times, and perform well when the storm clouds finally break. There's good reason utilities have long been seen as the ultimate widows-and-orphans stocks.
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Pulling your money out of the market is not really a viable option if you want to build generational wealth, because if you miss the rebound, your long-term returns will be severely harmed. Over the 20-year period between 2001 and 2021, the S&P 500 returned 9.5% annually on average, but if you had missed out on just the market's 10 best days, your returns would have been cut to 5.3%.
That's why buying now makes sense. The following three utility stocks are ones you'll be happy you own a decade into the future.
American States Water
American States Water (AWR -0.26%) is a utility that's seen it all. Founded in 1929, it's been through the Great Depression, two world wars, numerous market crashes and recessions, and a host of global geopolitical events that have turned the world upside down.
And through it all, it has steadfastly paid a dividend to its investors -- 86 straight years in all -- but more importantly has raised the payout each and every year for 68 consecutive years (it just raised it again by 8.9%). While that puts American States Water in that rarified group of stocks called Dividend Kings, it's all the more notable because no other stock on the market has as long a track record of raising its dividend than this water utility.
American States Water is primarily tasked with providing clean water and electricity to Southern California, which represents about 66% of its revenue, but it also has long-term contracts with the U.S. government to provide water to 11 military bases, which account for another quarter of total revenue. The rest it gets from generating electricity.
Shares of the utility are down 20% year-to-date as it has missed analyst earnings estimates several times over the past few quarters, but that is largely due to California utility regulators failing to approve its rate requests for 2022. That means American States Water is still operating under 2021 rates, so if and when the increases do go through, they should be retroactive to January.
The water utility is a solid, dependable business that has a long history of returning value to shareholders, a track record that will undoubtedly continue to 2032 and beyond.
Consolidated Edison
On the other side of the country is Consolidated Edison (ED -0.37%), commonly known as ConEd, which provides electricity, natural gas, and steam to customers in New York state. It has also heavily invested in the renewable energy market, and maintains it supports "a reliable transition from fossil fuels to renewables to reduce carbon emissions" while also maximizing returns for investors. It operates a network of utility-scale wind and solar energy projects across 20 states that can generate three gigawatts of power.
Yet even though ConEd's stock is up 15% in 2022, management believes that the market is undervaluing its business because of the differences inherent in the fossil fuel and clean energy businesses. It is conducting a strategic review of its clean energy assets, though it hasn't said whether a full sale, spinoff, or asset sale is the desired outcome. Analysts believe the utility will sell the unit as a whole to reduce its equity needs.
ConEd is another dependable dividend-paying stock to own for the long haul that has hiked its payout for 46 consecutive years, making it a Dividend Aristocrat, but one within reach of soon becoming a Dividend King.
Brookfield Infrastructure Partners
Yes, Brookfield Infrastructure Partners (BIP -0.75%) owns traditional utility operations around the globe, with electricity transmission and distribution lines in Australia and Brazil and natural gas pipelines in North America, South America, and India. Yet it also owns and operates a number of "utility-like" infrastructure assets too, including railroads, toll roads, ports, and liquefied natural gas (LNG) export operations; oil and natural gas midstream assets; and data centers, cell towers, fiber-optic cables, and data transmission assets.
Now Brookfield is getting into computer chips too, as it just signed an agreement with semiconductor giant Intel (INTC 2.39%) to jointly fund the chipmaker's new fabrication facility it's building in Arizona. Let's just say Brookfield Infrastructure is a unique play on the utility space.
What's especially distinctive about this infrastructure stock is that it's not especially beholden to any one asset, and is willing to sell any one of them off and either reinvest in existing operations or buy a new one. It has called that its "buy, enhance, sell, repeat" strategy. Wash. Rinse. Repeat.
While Brookfield doesn't have the same track record as American States or ConEd in dividend payments, it has raised its payout every year for 10 years. In another 10 years' time, investors will appreciate both its capital investments and its dividend.
