Utility and energy stocks have recorded significant gains in the past year, drawing investor attention amid market volatility and the push for net-zero emissions. The FTSE 100, often seen as a reliable but unflashy index, posted a 21.5% gain in 2025—its strongest calendar year performance since 2009. However, growth was narrow, driven by financial, defence, energy, and utility sectors.
Energy Stocks in Focus
Energy stocks have taken centre stage as oil prices fluctuate due to geopolitical tensions, including the Iran war. Investors are turning to utilities for steady growth and stable dividends. National Grid rose 20.7% over the past year, while United Utilities gained 30.9%. Russ Mould, investment director at AJ Bell, noted that utilities have performed well amid uncertainty, offering defensive stability with businesses relatively insensitive to economic cycles.
Attractive Valuations
Utility companies are known for attractive valuations, high dividend yields, and consistent cash flows. National Grid trades at a price-to-earnings ratio of 21, in line with the FTSE 100, and is forecast to post a 14% rise in earnings per share (EPS) this financial year. The company expects annualised EPS growth of 8-10% over the next five years, ahead of the wider index. SSE is expected to generate underlying EPS between 147p and 152p, while United Utilities reported a 42% gain in EPS to 107.1p.
Investment Plans and Government Support
Politicians and industry figures view utility stocks, especially those focused on renewables, as the future of UK energy. Energy Secretary Ed Miliband emphasised ending reliance on fossil fuels as the only route to financial security. FTSE utility stocks are capitalising on government growth ambitions, with National Grid shifting focus to electricity assets and completing the sale of its Grain LNG facility to Centrica. Centrica has also sold stakes in the Cygnus gas field, moving away from high-emission extraction.
Shifting Priorities
National Grid has announced a £70bn capital investment programme over five years, mostly for electricity. SSE plans to allocate 80% of its £33bn investment plan to regulated electricity networks, boosting output by 10% annually. Mould highlighted the recent decoupling of electricity and gas prices and the rise of data centres as beneficial, though grid connectivity remains a challenge.
Potential Problems
Despite regulated growth, utility companies face hurdles. The energy profits levy, or windfall tax, will rise to 55% from 45% from July 1, extended beyond 2028. Mould warned that higher taxes could stall investment plans, with SSE likely affected due to wind farm profits. National Grid, with about half its profit from US projects, is somewhat protected. Other risks include rising bond yields, which can reduce the attractiveness of utility stocks as bond proxies. UK bonds recently hit their highest levels since 2008, pressuring share prices to maintain high dividend yields.
Balancing Act
National Grid's £38.4bn debt pile makes it vulnerable to inflation and interest rate spikes. Analysts also caution that the UK faces a backlog in connecting renewable projects to the grid due to planning issues and supply chain constraints. United Utilities could face regulatory scrutiny from Ofwat if it fails to meet targets, though its financial headroom may absorb penalties.
