What should be obvious in investing is that the best companies last the longest, reward their shareholders the best and avoid widespread collapses like we saw in 2008-09. 

But investors still search for high-risk, low-reward stocks simply because they are more fun to talk about.

Just think of the “hot, new IPOs” we’ve seen over the past several years: Facebook (Nasdaq: FB), Twitter (NYSE: TWTR), Tesla (Nasdaq: TSLA), etc. Are these great companies? One could easily argue that none of them have the earnings, let alone margins, to be considered real money makers. 

So when my colleague over at Top 10 Stocks, Dave Forest, began discussing what actually makes a great company, my ears pricked up.

Among the many qualities he looks for, two stand out to me. Each great company has to have irreplaceable assets and top-tier customer retention.

The first is obvious. If you own something that you can’t get anywhere else, it has a high value. That goes for anything from a patent on a one-of-a-kind consumer gadget to a piece of real estate next to a major throughway. 

The second is where the flash-in-the-pan type stocks lose their charm. If you make a product that becomes an instant hit, you better be developing a better “upgrade” version of it right away. Otherwise, your customers will just be one-and-done with your company.

Apple (Nasdaq: AAPL) does this well, with new iterations on their iPhones every few years. Even if you doubt the advantages to buying a new iPhone every year, you can’t argue with Apple’s customer loyalty.  

But when I first read about these two characteristics Dave outlined, my mind went straight to a different type of company: utilities.

These are by far on the way other end of the sexiness spectrum. Everyone is talking about what they saw on Facebook and who just bought a new Tesla. But you hardly ever hear people discuss their local electricity provider.

That doesn’t make utilities any less of a great company. In fact, that’s part of what does make them so great.

People don’t talk about their utilities because they often have no choice on who they get their electricity, gas or water from. These companies are essentially mini monopolies.

The high cost and set rates (for regulated utilities at least) dissuade new entrants from coming into a market that already has a provider.

These “monopolies” even come with government approval. Regulated utilities sit before a municipal board and work out how much money they are going to be able to make over the next one, five or ten year periods. Imagine Twitter being guaranteed a set income each year. Even more people would be buying that company.

So for utility companies, they certainly have irreplaceable assets, which means they suffer little to no competition, and they have incredibly loyal customers, because they literally either can’t go without or cannot find these services elsewhere.

In a market that has been volatile, rife with underperforming “hot stocks” and is experiencing an overall global economic slowdown utilities really do offer a great place to invest.

And right now, three stick out to me…

Top 3 Utilities To Own Today
The first two are electricity and gas providers. Each are clear market dominators and, as Dave would put it, “great companies.” The third also qualifies as “great,” but it derives its steady income from water — where demand might be highest in the utility business.

1.    NextEra Energy Inc. (NYSE: NEE) is not only one of the largest electric utility companies in the United States. It’s also one of the cheapest.

The company operates in 27 states, and also has businesses in Canada and Spain. Unlike most utilities, it operates all sides of the electricity grid. It has both power generating facilities and transmission lines to take that power to customers. 
Right now, its stock is trading at just 16 times its earnings. That’s roughly 27% cheaper than Duke Energy (NYSE: DUK), the only other company of NextEra’s size.

2.    American Electric Power Company Inc. (NYSE: AEP) too has a complete stranglehold on its regions. It produces and distributes power in 11 states.

Its regulated business gives investors great transparency on just how much they can expect AEP to make each year. That has helped the company grow its dividend consistently for more than a decade. Today, its stock yields 3.8%, marking it as one of the top payers and fastest growers.

It too is priced too low. At 17 times its earnings, it has plenty of room to grow its share price.

3.    American Water Works Company Inc. (NYSE: AWK) provides its customers’ drinking water and wastewater in all but three states. That spread has helped it become the largest publicly-traded water company in the country.

It has also helped AWK provide one of the most consistent, growing dividends to shareholders out of any company in the industry. Right now, it yields 2.4%. But it has been growing those payments since going public in 2008.

With water becoming a more and more important resource, exposure to the largest water utility has never been more important. 

All three of these companies fall into the “great” category. They may not be as exciting as others in the market. But they all have reliability, sustainability and pay solid income to their shareholders every quarter.

Risks To Consider: Utilities do need access to capital markets to expand. So if interest rates do end up rising, these companies could be forced to spend more money to finance expansion projects.

Actions To Take: All three of these utilities are among the best in their fields. Each qualifies as a great business. And every one of them continues to pay and grow their dividends. Considering adding these three tremendous companies to your portfolio.

P.S. The most anticipated report of the year is finally here! Click here to get Dave Forest’s special report, The Top 10 Stocks of 2016. You’ll not only find a list of stocks that have the best chance to beat the market for the next year, you’ll also have a chance to receive three free issues of Top 10 Stocks. Find out more here.