The world's top 10 utility companies

Utility companies provide power – one of the most basic needs of households and industrial enterprises. Here's our Top Ten list (by market value) of the biggest providers of electricity, natural gas and multiline power. Interestingly, a majority of them are based in either the U.S. or Europe. (The costs to build and maintain the infrastructure necessary to produce and distribute energy is one of the greatest challenges facing emerging countries.)

Duke Energy Corporation (NYSE: DUK) is one of the largest electric power holding companies in the U.S. Headquartered in Charlotte, N.C., its regulated utilities business unit serves 7.4 million retail electric customers in six states in the Southeast and Midwest regions, boasting approximately 57,700 megawatts of electric generating capacity. Almost all of its electricity generation comes from coal, natural gas and oil. As of mid-2018, it has 28,798 employees, $23.9 billion in operating revenue, approximately $52 billion market capitalization and $133 billion in total assets. It's also known for consistently offering high dividend payouts to shareholders (current dividend yield is 4.78%).

Duke Energy operates 32,200 miles of total transmission lines, 268,700 miles of total distribution lines and 32,900 miles of total gas transmission and distribution pipelines. 

Previously known as GDF Suez, Engie SA (ENXTPA:ENGI) is a multinational utility company headquartered in France. It has operations in electricity generation and distribution, natural gas and renewable energy. The name change reflects the company’s departure from the state-owned nationalized gas monopoly. As of year-end 2017, the company has 154,950 employees and €65 billion in revenues. The firm's market capitalization was €31.52 billion, as of June 2018.

Headquartered in London, National Grid PLC (NYSE: NGG) is a multinational electricity and gas utility company with principal activities in the U.K. and Northeastern U.S. The company owns and maintains the high-voltage electricity transmission network in England and Wales. As the owner and operator of the only gas transmission infrastructure in the U.K., all of the nation's natural gas passes through National Grid's national transmission system. As of June 2018, National Grid has approximately 25,000 employees, $20 billion in revenue and a $37.99 billion market capitalization.

Based in Juno Beach, Fla., NextEra Energy Inc. (NASDAQ: NEE) is an investment company with interests in power generation, transmission and distribution in the U.S. and Canada. In 2018, NextEra operates with a 45,900 megawatts generating capacity, has 14,700 employees and $16.6 billion in revenue. The company has an approximately $76 billion market capitalization, as of June 2018.

French state-owned Électricité de France SA (EXNTPA: EDF) provides power generation, transmission, distribution, and energy supply and trading. It is involved in every aspect of the electricity industry. Group companies operate in many countries around the world and employ approximately 155,000 people. The company is consolidating its operations in France and Europe and increasing its presence in key emerging countries, such as Brazil, China and Russia. EDF owns and operates three of the world's Top 10 nuclear power plants by capacity and is the largest producer of low-carbon electricity in the U.K. EDF had €69.63 billion in annual revenue in 2017 and currently has a $33 billion market capitalization.

Based in Rome, Enel (BIT: ENEL) is a multinational power company and a leading integrated player in the world’s power and gas markets, with a particular focus on Europe and Latin America. With over 64 million users worldwide, it has the largest customer base among European companies. Enel Group operates in over 30 countries across five continents, producing energy through a 83,000 megawatts capacity and distributing electricity and gas through a network covering over one million miles.

Enel operates in hydroelectric, thermoelectric, nuclear, geothermal, wind, solar PV and other renewable sources. Almost half of the electricity it produced in 2017 was free of carbon dioxide emissions, making it one of the world's major producers of clean energy. As of year-end 2017, it has 63,500 employees, €74.64 billion in revenues and in June 2018, a $49.12 billion market capitalization.

Based in Richmond, Va., Dominion Resources Inc. (NYSE: D) is one of the largest producers and transporters of energy in the U.S. It features a 25,700 megawatts generating capacity, 15,000 miles of natural gas pipeline and 6,600 miles of electric transmission lines. The company operates one of the nation's largest natural gas storage systems with 928 billion cubic feet of storage capacity, serving utility and retail energy customers in 14 states. Dominion has 16,200 employees, approximately $13 billion in sales and a $42.93 billion market capitalization.

Iberdrola SA (BME: IBE) is a Spanish public multinational electric utility company based in Bilbao. Subsidiaries include Scottish Power, Iberdrola USA and Elektro (Brazil). It has an approximately 31,000 employee workforce over four continents, serving around 32 million customers. The company had €31 billion in sales as of 2017 and a €42 billion market capitalization in June 2018.

The Southern Company (NYSE: SO) is an electricity producer and distributor based in Atlanta that constructs, acquires, owns and manages assets and sells electricity in the wholesale market. It operates through subsidiaries including Alabama Power, Georgia Power, Gulf Power and Mississippi Power. It serves approximately nine million customers and has a 46,000 MW generating capacity. The company has 32,000 employees, $23.78 billion in operating revenue as of 2018 and a $45.28 billion market capitalization.

Chicago-based Exelon Corporation (NYSE: EXC) is one of the largest U.S. power generators, with more than 35,500 MW of nuclear, gas, wind, solar and hydroelectric generating capacity. Exelo n conducts business across the U.S. and Canada; it had 2018 revenues of $34.48 billion , approximately 34,000 employees in the U.S. and a $40.38 billion market capitalization.

Utilities are among the lowest-risk securities available, commonly having more-than-adequate cash flows and excellent credit ratings. Most utility firms are well-established companies with solid revenues.

The sector exhibits a high degree of geographic segmentation, due to companies enjoying virtual monopoly status in their markets. Utilities companies incur significant upfront costs to start supplying utility services by purchasing power and water equipment and installing a distribution network. Because of high fixed costs and relatively stable and low subsequent marginal costs to produce additional product units, utilities companies become natural monopolists in specific geographic areas. Installing a duplicate distribution network with the building of power and water plants by other companies results in higher costs for the community compared to a single natural monopolist.

Because of this monopoly status, governments around the world heavily regulate utilities companies and determine prices that utilities are allowed to charge customers. Because services are highly regulated, growth in the sector is highly dependent on the local government allowing the companies to raise prices.

As a result, these companies typically do not engage in major expansions and rarely have exponential growth opportunities. Because of their focus on stable revenues rather than on growth, the management teams do not generally feel the need to retain large sums to be reinvested into the business. Therefore, these companies are free to distribute greater percentages of their earnings in the form of dividends to shareholders. The utilities sector traditionally offers a high dividend payout, with the top companies offering an average dividend yield of 3%-4%.

The utilities sector's primary appeal to investors is its resistance to economic ups and downs. While it does not offer aggressive gains during bull markets, it tends to hold its value much better than the broader market during downturns and recessions. Of course, as within any market sector, some companies consistently outperform others.

The general stability of their revenues, along with their consistently strong dividends, makes utilities of particular interest to income investors, especially in a lower interest rate environment. It is also well-suited for conservative, buy-and-hold investors who, rather than trying to get rich quick, wish to accumulate wealth slowly over the long-term while eschewing significant risk.

However, the sector's lack of volatility compared to the broader stock market does not preclude it completely from being subjected to the market's ups and downs. As such, an investor who forecasts market trends correctly can profit from a fall in utilities by employing speculation methods such as short selling and various futures and options strategies, such as put options (selling a stock in the future but at a price agreed upon today).

Volatilitybetabear markets

So, when hedging exposure to utilities, investors seek sectors that do the opposite – gain more than the broader market during bull markets and lose more during bear markets. They find these sectors by looking for betas greater than 1. Sectors that have high betas – offering strong gains during phases of the economic cycle when utilities do not – include trucking (1.32), Internet software (1.29) and home-building (1.29.)