At first blush, there is no apparent immediate threat of recession.
Now look again. Inflation has been rising, hitting a nearly three-year high of 3.8 percent last month. The Federal Reserve isn’t in a position to do much about it either. The best weapon against inflation is high interest rates. Still, the already shaky (and heavily indebted) U.S. economy could collapse under the weight of just one or two rate hikes.
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Connect the dots. Owning stocks isn’t exactly a low-risk proposition here. However, there is an exception to this concern. It’s largely about recession-proof utility stocks, which offer services that consumers and corporations alike should continue to pay for, regardless of economic background.
So if you’re worried that a recession — or even just a period of prolonged economic weakness — is brewing, Utility stock like Southern Company(NYSE: SO ), Brookfield Renewable Corporation(NYSE: BEPC)and Vastra(NYSE: VST ) There may be smart holdings to add to your portfolio sooner rather than later.
Southern Company is a forecast industry stalwart.
There is nothing special about The Southern Company. But here’s the thing.
Recession-fearing investors want to own well-established and well-proven defensive names. That’s what this utility dress brings to the table. The $100 billion organization has been in business for over a century now, and currently serves more than 9 million customers across the United States.
Currently its largest single fuel source is natural gas, although, as it moved away from coal, it is now investing in renewables as opportunities and funding allow. However, it is not aggressively pushing for this change, and is putting itself in financial trouble as a result.
Perhaps more important to defensive-minded investors, Southern’s well-established presence in a business that few can avoid using should continue to generate profitable revenue no matter what happens in the near future.
And that’s what makes this ticker hold up so brilliantly in tough times. It can not only afford to continue paying its cash dividends, but also increase them. Southern Co. has now increased its dividend per share for 25 consecutive years, in fact, through a handful of rough patches.
Newcomers will receive a futures yield of 3.2%.
Brookfield Renewables: Same idea, different package
Combining a surprising amount of wind, solar, and hydropower, as well as bowing to the more esoteric elements of the renewable energy industry, the company’s 48 gigawatts of generating capacity turned $6.4 billion in revenue last year into net income of $712 million, a dramatic improvement over the previous year’s numbers.
However, that’s not what makes Brookfield Renewables such a great investment prospect here. For that matter, neither does it have a flexible structure. (This company is not tied to any particular geographical location, but can and will invest in any suitable opportunity wherever it may be.)
Image source: Getty Images.
What makes this name a must-have, in good times and bad, is that it is being built from the ground up to pay dividends and grow. Not only is its forward-looking yield of 4.6% better than most of its peers’ stocks, but it’s targeting payout growth between 5% and 9% per year, based on a total annualized net return of between 12% and 15%.
The thing is, it arguably can. Just make sure you step into the right ticker if you’re interested. Its counterpart Brookfield Renewable Partners(NYSE: BEP ) Offers about the same performance. But it’s structured as a partnership, which comes with tricky tax rules that may not be worth the hassle for investors who just want a little protection.
Vasra is a defensive value name for growth investors.
Finally, add Vistra to your list of top recession-proof utility stocks to consider buying this month — though not necessarily for the reason you’re thinking.
At a quick glance, the Vistra doesn’t look much different from any other outfit in the business. It uses increasing amounts of natural gas and decreasing amounts of coal to power a few million American homes (mostly in the Northeast). It is also easing its way into renewables, leading the way with nuclear.
Vistra differs from other utility names, though, in a few important ways.
First, while it serves 5 million retail customers, its focus is increasingly on generating electricity that can be distributed to different regions using the country’s power distribution grids. It is also developing customized and easy-to-locate solutions that specifically serve the country’s fast-growing AI data center industry. It has already signed a long-term power purchase agreement with Facebook parent. Meta platforms and cloud computing giant Amazon, though more are in the works.
And this may be the best opportunity to take advantage of this time. The International Energy Agency predicts that global electricity demand from AI data centers will more than double between 2024 and 2030, and then grow another 27 percent between then and 2035.
The other odd thing with Vistra is that, while it technically pays dividends, it’s not its priority. Most of its profits are being plowed back into its own growth of the business. And it’s working, even if so much capital is being deployed now that it won’t start producing any meaningful returns until a few years from now.
The point is that this ticker is at least as much a part of growth investing as it is value or income investing. For growth investors who don’t want or need dividend income but still want to be a little defensive at the moment, VST is an ideal option, especially since it’s well below last year’s peak when AI-mania was at its height. There’s a reason the analyst community still thinks it’s worth $233 a share — a 73% premium to the stock’s current price — just as there’s a reason the majority of those analysts currently rate the stock a strong buy.
Should you buy stock in Southern Company now?
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James Brumley No positions in any of the stocks mentioned. The Motley Fool has positions on and recommends the Amazon and Meta platforms. The Motley Fool recommends Brookfield Renewables and Brookfield Renewable Partners. The Motley Fool has one Disclosure Policy.
