3 High-Yield Utility Stocks to Buy to Create Years of Passive Income

The utility sector has been a sleepy industry over the years. These companies generate very stable earnings backed by government-regulated rate structures. Because governments set rates, utilities don't grow that fast.

However, these companies tend to generate lots of stable income, which gives them money to pay lucrative dividends. Black Hills (NYSE: BKH), Dominion (NYSE: D), and Duke Energy (NYSE: DUK) currently stand out to a few Fool.com contributors for their high-yielding payouts. Here's why they believe these utility stocks could help you generate years of passive income.

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Black Hills is a Dividend King with a lofty yield

Reuben Gregg Brewer (Black Hills): Getting into the elite ranks of Dividend Kings is an impressive feat. It requires a strong business model that gets executed in good times and bad. Black Hills is one of the few utilities that has achieved Dividend King status despite being an industry small fry with a market cap of only around $4.5 billion. But that's not all that sets it apart from the pack today.

Black Hills' dividend yield is roughly 4.4%. That is far above the 1.3% or so yield on offer from the S&P 500 Index (SNPINDEX: ^GSPC) and the 2.9% of the average utility. So not only is Black Hills a Dividend King but it also has a relatively attractive yield.

What's the catch?

There's really no catch. Black Hills is just small and underfollowed. In fact, the utility's customer base has been growing at nearly three times the rate of the U.S. population. That's pretty attractive and suggests that Black Hills should continue to have its investment plans and rates approved by regulators. That, in turn, should allow this Dividend King to live up to its long-term goal of 4% to 6% earnings growth, with dividends likely to grow at a similar rate.

To be fair, Black Hills isn't going to be an exciting stock to own. But it is the kind of high yield utility you buy if you want to create years of reliable passive income.

Income stability and then growth

Matt DiLallo (Dominion): Dominion Energy provides electricity to millions of customers across Virginia and the Carolinas. Demand for power in those places is surging, driven by economic growth, increased electrification, and data center expansion. Virginia, in particular, is a hotbed of data center developments.

The utility is investing heavily to meet the growing demand for power. Dominion expects to invest a staggering $50 billion by 2029 on projects to grow its lower-carbon energy generation capacity and the resiliency of its options. For example, the company and its joint venture partner are spending over $10 billion to build the Coastal Virginia Offshore Wind project, which will help supply renewable energy to meet growing demand in Virginia.

Dominion's investments should grow the company's earnings per share at a 5% to 7% annual rate over the next several years. That ever-increasing earnings stream will enable the company to maintain its current dividend level during its heavy investment phase. At a 4.9% yield, the utility can generate a lot of income for investors in the years to come. Meanwhile, as its earnings grow and its dividend payout ratio declines, Dominion can eventually start increasing its dividend.

Given the increasing power needs of data centers, the company should have plenty of growth beyond 2029. It should also be able to pay a stable and eventually growing dividend for years to come, making it a top utility to buy if you want to generate a lot of passive income.

A steady dividend stock with long-term goals

Neha Chamaria (Duke Energy): Duke Energy recently reiterated its long-term earnings growth targets through 2029, which should also mean bigger dividends for shareholders for years to come.

Duke Energy has paid a dividend every year for 99 consecutive years and increased it every year for over a decade now. Duke Energy stock's 3.5% yield may not be among the highest in the utility sector, but its consistent dividend growth has contributed handsomely to shareholder returns over time. In five years, Duke Energy has generated 80% in total returns (with dividends reinvested) and has more than doubled investors' money in the past decade. Also, its dividend yield is twice that of the S&P 500.

DUK data by YCharts

Duke Energy expects to grow its adjusted earnings per share (EPS) by 5% to 7% through 2029 off its 2025 guidance midpoint and remains committed to growing its dividend while maintaining a target payout ratio of 60% to 70%. I strongly believe the company can meet its goals, given its wide footprint in growing jurisdictions and growth moves.

For perspective, Duke Energy is among the largest regulated utilities in the U.S., providing electricity to 8.2 million customers and gas to 1.6 million people. It primarily serves the Southeast and Midwest regions. While some of the states like Florida and the Carolinas are witnessing high population migration, the Midwest is witnessing a boom in data centers. Both factors should work in Duke Energy's favor. Meanwhile, Duke Energy plans to invest $83 billion between 2025 and 2029 to modernize and expand its infrastructure, which should support rate increases.

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Matt DiLallo has no position in any of the stocks mentioned. Neha Chamaria has no position in any of the stocks mentioned. Reuben Gregg Brewer has positions in Black Hills and Dominion Energy. The Motley Fool recommends Dominion Energy and Duke Energy. The Motley Fool has a disclosure policy.