The utility sector isn't exactly known for growth, but that doesn't mean you can't find it if you are willing to look. And dividend growth is exactly what you'll get from Brookfield Renewable (BEP -0.26%) (BEPC -0.70%), NextEra Energy (NEE -0.36%), and American Water Works (AWK -0.69%).
These three stocks represent three very different companies that get lumped in with the normally slow-growing utility sector. Here's why you might want to buy these dividend growth stocks as November gets underway.
1. Brookfield Renewable offers yield and growth
Of the three stocks here, Brookfield Renewable is going to have the widest dividend appeal. That's because the partnership share class (BEP) has a lofty 5.6% yield. The corporate share class (BEPC), which represents the same entity in every way, has a dividend yield of 4.7%, a function of the higher demand for the corporate shares that trade under a different (less complicated) tax structure.
Those yield figures are augmented by the fact that the distribution (or dividend, depending on the share class you are looking at) has grown by a 6% annualized rate since 2001. Looking forward, the goal is growth between 5% and 9% a year.
That's a very attractive combination of growth and income. But the real story is Brookfield's focus on renewable energy, which is expected to see increased demand for years into the future. That outlook is backed by the world's shift from carbon-based energy to cleaner energy sources like solar and wind.
Brookfield is a one-stop shop in the renewable space, with hydroelectric, solar, wind, and storage assets spread across a portfolio with a global reach. If you like dividend growth and you like big yields, this is the opportunity to consider first.
2. NextEra Energy mixes the old and new
If you aren't quite ready to go all in on clean energy, don't worry, you don't have to. You can buy a utility like NextEra Energy that offers a mix of traditional regulated utility assets and clean energy.
That's what backs this company's 2.6% yield and huge 10% annualized dividend growth rate over the past decade. That growth rate isn't a fluke; management is targeting 10% dividend growth through at least 2026.
The clean energy side of the business is the growth engine, as the company continues to invest in solar and wind power. Just like Brookfield Renewable, NextEra Energy appears to be in the early innings of a long growth game.
But don't overlook the company's regulated utility assets, which are largely made up of Florida Power & Light. That's one of the nation's largest electric utilities and has long benefited from migration to the Sunshine State. More customers mean more revenue and more need to invest in growth projects.
You can get higher yields elsewhere in the utility sector, but the dividend growth that NextEra Energy offers will be hard to replicate.
3. American Water Works has a historically high yield
American Water Works is one of the largest publicly traded water utilities. It is currently offering a yield of 2.2%. That's the lowest dividend yield of the three and certainly doesn't sound huge, but it is above the five-year average yield for the company, which is about 1.7%. That suggests that the stock is attractively priced right now.
Add in the 10-year annualized dividend growth rate of just under 10%, and the story gets even more attractive.
That said, American Water Works is probably the most boring option from a business perspective. It owns and operates water and wastewater systems.
But water is clearly essential to life. And the U.S. water system is old and in need of huge upgrades driven by capital investment. That's the opportunity, with American Water Works' five-year capital investment plan for up to $18 billion, and its 10-year plan for up to $42 billion.
All of that spending will help support regulated rate growth between 8% and 9% a year. Now, this boring stock will suddenly look a lot more exciting, considering that the 7% to 9% dividend growth target is pretty compelling, too.
Don't paint these stocks with the same boring old utilities brush
Just like every other industry, the utility sector is made up of individual companies. Yes, many are boring, slow-growth companies. But there are a few gems in there that buck the trend in a very good way.
Brookfield Renewable, NextEra Energy, and American Water Works are three of them. If you like dividend growth stocks, you'll probably find each one attractive as we enter the month of November.