Is Essential Utilities, Inc. (WTRG) Among the Most Profitable Utility Stocks to Buy Now?

We recently published a list of 10 Most Profitable Utility Stocks to Buy Now. In this article, we are going to take a look at where Essential Utilities, Inc. (NYSE:WTRG) stands against other most profitable Utility stocks to buy now.

Utility companies supply basic utilities like water, gas, and electricity. The demand for these stocks’ services is often steady, even during recessions, which makes them defensive investments.

Morningstar energy and utilities strategists Travis Miller and Andrew Bischof see reasons to invest in utility companies, stating that while the 2024 surge paused in October as interest rates began to rise, utility stocks are still holding on to their stellar performance from the previous year. Most US utilities are trading near the estimates of their fair values as of mid-February.

Utility firms generally generate substantial dividends and appear to be expensive at present. Miller & Bischof stated:

“Utilities continue to grow their dividends at an impressive rate. Nearly all utilities have already announced dividend increases for 2025 or are on track to announce increases in the first quarter. We expect 5% median sectorwide dividend growth in 2025.”

According to JP Morgan’s report in 2024, utility stocks have become unanticipated market leaders, outperforming only the technology sector and yielding a total return of over 17%. The adoption of AI, the growth of data centers, the proliferation of EVs, and the outsourcing of manufacturing are the main drivers of this rally, which is aided by a rapid shift in the demand for electricity. Data centers alone already account for 4.5% of U.S. electricity usage, which is expected to rise to almost 8% by 2030 after two decades of stagnant demand. Given the growing number of extreme weather events, the U.S. electric grid, which is largely over a century old, is unprepared to handle this surge and will require significant investments in capacity, stability, and resilience. Businesses engaged in storage, grid upgrading, and generation stand to gain from this shift. The industry is trading at 18.7x projected earnings, which is 13% less than the broader market, showing that it will continue to be valuable even after the recovery. Utility dividend yields may become more attractive if interest rates decline, which could lead to more growth. Utilities present a strong alternative for investors looking to gain exposure to the expansion of AI-related infrastructure without following tech prices, supported by real demand and structural investment requirements.

The broader market’s utilities sector has performed well over a range of historical periods. The year-to-date return is 3.61%. In the last year, the sector’s return was strong at 17.65%. When considering longer periods, the annualized return is 1.86% for the first three years and 6.13% for the fifth. At 5.68%, the 10-year annualized profit is a little lower. The utilities sector exhibits steady growth in comparison to the overall market, with large short-term gains but a more moderate long-term return, showing its defensive nature and steadiness during volatile times. The resilience of the 5-year performance is noteworthy.

Utility stocks may be more secure than other sectors, but they are nevertheless vulnerable to a halt in expenditure on thirsty data centers. Long seen as market safe havens, utility equities are suddenly uncertain as artificial intelligence changes the demand for electricity. According to Scotiabank’s Andrew Weisel, “electricity is a very basic need for most individuals and most companies,” underscoring the industry’s longstanding resiliency. However, as U.S. consumption dominates the world and is expected to exceed 1,000 TWh annually by 2030, as per the IEA, this stability is becoming increasingly connected to AI-driven data centers. Earnings risks are increased by a slowdown in AI capital expenditures, such as a giant tech company owned by Bill Gates reducing some of its programs. Weisel cautioned that “investors will be skeptical,” while Nikki Hsu of Bloomberg Intelligence pointed out that “requests for rate hikes would be rejected by regulators” during a recession.

Our Methodology

For this list, we screened for utility companies with a net profit margin over 10%, which suggests sound financial health and excellent cost management. The stocks are ranked in ascending order of their net profit margin as of the most recent quarter.

Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points. (see more details here).

Essential Utilities, Inc. (NYSE:WTRG)

Net Profit Margin: 28.54%

One of the few pure-play water utilities in the US for over 50 years was Essential Utilities, Inc. (NYSE:WTRG), previously Aqua America. However, in March 2020, it diversified its earnings mix and increased its size by about 50% with the $4.3 billion acquisition of Peoples Natural Gas.

The firm increased its 2024 GAAP earnings per share from $1.86 to $2.17. The non-GAAP earnings per share were $1.97, which was consistent with the $1.96 to $2.00 projection. Additionally, Essential Utilities, Inc. (NYSE:WTRG) won rate cases for natural gas and water in Pennsylvania, which account for 75% of operations. Weather normalization was implemented, and both stockholders and customers benefited from the January 2025 changes.

The company has spent more than $1.3 billion in 2024 alone, out of a total of over $5.4 billion since 2020, for infrastructure improvements in nine states. These initiatives include improving water pressure systems, replacing outdated pipelines, eliminating lead service lines, and modernizing treatment facilities. Essential Utilities, Inc. (NYSE:WTRG) intends to invest $1.4 billion in 2025, with a total of $7.8 billion by 2029. Its net profit margin grew by 28.54%, making it on our list of the  Best Utility Stocks. 

The firm was raised from Hold to Buy by Jefferies on January 28. Essential Utilities, Inc. (NYSE:WTRG)’s price objective was set at $41. The stock was upgraded due to anticipated water purchases, particularly in Pennsylvania, and significant compliance-related spending. Jefferies projected a 20% total shareholder return and 6.4% annual growth through 2029, maintaining its 2024 and 2025 EPS estimates at $1.98 and $2.15.

Overall, WTRG ranks 2nd on our list of the 10 Most Profitable Utility Stocks to Buy Now. While we acknowledge the potential of Utility companies, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. There is an AI stock that went up since the beginning of 2025, while popular AI stocks lost around 25%. If you are looking for an AI stock that is more promising than WTRG but that trades at less than 5 times its earnings, check out our report about this cheapest AI stock.

READ NEXT: 20 Best AI Stocks To Buy Now and 30 Best Stocks to Buy Now According to Billionaires.

Disclosure: None. This article is originally published at Insider Monkey.