Utility stocks are companies that provide essential services like electricity, natural gas, and water. Because people rely on these services in any economy, demand and revenue tend to stay steady, even during recessions.
Many utilities operate under regulated or contracted pricing, which supports predictable earnings and often above-average dividends. That mix of stability and income makes utilities popular with income-focused and retirement investors, as well as those seeking more defensive holdings. Still, performance can vary, so it is worth focusing on utilities with the right traits to outperform over time. Here are some top options and what to look for in a utility investment.
Three top utility stocks to consider
The best utility investments are companies with a top-notch financial profile and visible growth prospects. Each of the companies below meets those criteria and has the potential to produce above-average total stock returns -- dividend yield plus stock price appreciation.
| Name and ticker | Market cap | Dividend yield | Industry |
|---|---|---|---|
| American Water Works (NYSE:AWK) | $26.6 billion | 2.43% | Water Utilities |
| Brookfield Infrastructure (NYSE:BIPC) | $6.6 billion | 4.36% | Gas Utilities |
| NextEra Energy (NYSE:NEE) | $195.4 billion | 3.08% | Electric Utilities |
American Water Works
NYSE: AWK
Key Data Points
2. Brookfield Infrastructure
NYSE: BIPC
Key Data Points
Brookfield Infrastructure owns a diversified portfolio of utility-like infrastructure businesses, including:
- Utilities: Regulated electric and natural gas transmission and distribution businesses, gas pipelines, electricity transmission lines, and a residential decarbonization infrastructure platform.
- Transport: Railroads, toll roads, ports, liquefied natural gas (LNG) export operations, and intermodal containers supported by long-term contracts or regulated rate structures
- Midstream: Oil and natural gas midstream assets backed by long-term contracts or regulated rates
- Data: Data centers, cell towers, semiconductor foundries, fiber-optic networks, and data transmission assets supported by long-term contracts with customers
Brookfield Infrastructure operates several utilities and utility-like businesses that generate predictable cash flow that grows over time. The company benefits from inflation-linked rate escalations, higher volumes as the economy expands, and its ability to complete expansion projects.
Brookfield believes these organic growth drivers alone can support 5% to 9% annual dividend growth over the long term. It increased its dividend by another 6% in early 2026, its 17th straight year of growth.
In addition to organic growth, Brookfield anticipates that acquisitions can further boost its earnings each year. In 2025, the company agreed to invest $1.5 billion in a leading refined products pipeline system, a bulk fiber provider, a railcar leasing platform, a natural gas infrastructure business, and an industrial gas business. These businesses generate highly stable utility-like cash flows, supported by government-regulated rate structures and long-term contracts. When added to its organic growth drivers, acquisitions can help fuel 10%+ annual funds from operations (FFO) per share growth in the coming years.
3. NextEra Energy
NYSE: NEE
Key Data Points
NextEra Energy operates a regulated electric utility in Florida. It also owns and operates natural gas pipelines, electricity transmission lines, and renewable energy projects that generate predictable income backed by long-term, fixed-rate contracts. These businesses supply NextEra with steady cash flow to support its dividend and invest in expanding its utility business.
The electric utility expects its investments will grow its adjusted EPS by more than 8% annually through 2035. That's faster than the EPS growth rate projections of its largest peers in the electric utilities sector, which are in the low- to mid-single digits.
Another factor helping power above-average growth is NextEra's strong financial profile, which gives it the flexibility to fund its investments. Its profile includes one of the highest credit ratings among large, rate-regulated electric utility companies and a dividend payout ratio that has historically been below the sector average. Due to its lower payout ratio, NextEra plans to increase its dividend by roughly 10% in 2026 and by around 6% annually in 2027 and 2028.
Utilities need a strong financial profile to maintain and expand infrastructure while also paying an attractive dividend.
Pros and cons of investing in utility stocks
Investing in utilities has its benefits and drawbacks. Some of the pros include:
- Above-average dividend income.
- Lower volatility.
- Predictable revenue and earnings.
- Steady growth.
- Recession-resilient investment.
Meanwhile, some of the cons of investing in utility stocks are:
- Slower growth.
- Lower return potential.
- Higher debt levels.
- More sensitive to changes in interest rates.
- Regulatory risks.
What makes a good utility stock investment?
Utility infrastructure is costly to build and maintain. Utilities need a strong financial profile to maintain and expand infrastructure while also paying an attractive dividend. These three metrics can help you gauge a utility's financial strength:
An investment-grade bond rating
A bond rating or credit rating for a company is like a credit score for an individual. Companies with higher investment-grade bond ratings can borrow money at lower rates and on easier terms.
That's important for utilities since they routinely need to borrow money to help fund maintenance and expansion projects. Investors should seek companies with high bond ratings since they can more easily finance their operations, which helps them increase their earnings and dividends.
Low leverage metrics
While utilities must borrow to finance their operations, excessive debt can limit their ability to grow. Investors should look for utilities with conservative leverage ratios for the sector.
Two notable ones are debt-to-earnings before interest, taxes, depreciation, and amortization, or EBITDA (debt in relation to income), and debt-to-total capital (debt in relation to total value). Good targets for the sector are a debt-to-EBITDA ratio below 4.5 times and a debt-to-capital ratio below 60%.
A conservative dividend payout ratio
A dividend payout ratio is the percentage of a company's profits paid to investors via its dividends. Utilities traditionally have higher dividend payout ratios than other companies. Most target a payout ratio of 60% to 70% of their earnings, well above the 40% average for higher-yielding stocks in the S&P 500.
However, utilities with a relatively lower payout retain more cash to reinvest in expansion projects. Consequently, they don't need to borrow as much money (which would lower their credit rating) or issue as many new shares (which would dilute existing investors' shares of their profits) to finance growth.
Utilities with stronger financial profiles have greater flexibility to invest in expansion projects and make acquisitions, positioning them to expand their earnings at an above-average rate. The extra fiscal strength also gives them more power to increase their dividends.
How to invest in utility stocks
Here's a step-by-step guide on how to add utility stocks to your portfolio:
- Open your brokerage app: Log in to your brokerage account where you handle your investments.
- Search for the utility stock: Enter the ticker or company name into the search bar to bring up the stock's trading page.
- Decide how many shares to buy: Consider your investment goals and how much of your portfolio you want to allocate to this stock.
- Select order type: Choose between a market order to buy at the current price or a limit order to specify the maximum price you're willing to pay.
- Submit your order: Confirm the details and submit your buy order.
- Review your purchase: Check your portfolio to ensure your order was filled as expected and adjust your investment strategy accordingly.
Utility industry trends and what they mean for investors
Utilities are benefiting from two major tailwinds. First, the shift to cleaner energy is pushing companies to invest in natural gas, nuclear, and renewables. Second, electricity demand is rising as electric vehicles, automation, and AI data centers use more power. Both trends support long-term infrastructure spending and growth.
Strong utility companies pair these growth drivers with solid finances, which helps them invest in expansion while raising dividends. With steady demand, regulated pricing, and ongoing infrastructure needs, leading utilities can grow earnings even in slower economies. For investors seeking income and relatively stable growth, that combination can be appealing.
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