Sempra Energy is a diversified utility company with more than 35 million customers spread across California and parts of Texas. It owns and operated utilities and energy infrastructure such as power plants and natural gas pipelines. Power and energy are core sectors of any economy and the overall economic development leads to slow and gradual growth in demand for energy. Natural gas is also expected to be a growing market long term. Therefore, investors looking for utility stocks may find Sempra Energy to be well-placed for long-term future growth.
Benefits Of Investing In Utility Stocks
Utility companies provide services that are considered essential. These services are recession-proof as people need electricity to live. Utility companies are often known to comprise the core sector of the economy. The business model of such companies is very stable and it is relatively straightforward to predict future earnings. The demand for electricity grows at a steady pace. Additionally, in most cases, utility companies are able to pass on a rise in raw material costs (e.g. coal, natural gas) to customers. Plus, utility businesses are hugely capital intensive, thus creating an entry barrier for new competitors. In many cases, utility companies have a monopoly over a specific geographical area where no other competitor can offer electricity. Therefore, the margins, the net profits, and the dividend payouts are relatively stable and predictable.
Sempra Energy is an attractive utility stock. It traded at a healthy 3.35% dividend yield at the end of day on 1st February 2021. The stock closed at $124.94, up almost 1% for the preceding month. The stock has risen 40% since hitting a low during the March 2020 market crash. Another utility company, American Electric Power, is similar in market capitalization to Sempra Energy. That stock traded at a 3.65% dividend yield at the end of day on 1st February 2021. Its stock closed at $81 on that day, down 0.44% for the preceding month. The stock is up 15% since the March 2020 market crash.