With the Federal Reserve debating its next move and markets bracing for the possibility of higher rates, many investors are rethinking how they get reliable income from stocks. Rising borrowing costs and inflation worries can unsettle growth stories, yet they also shine a spotlight on companies that focus on steady dividends and durable cash flows. This article walks through three stocks from a Defensive Dividend Stocks screener that appear positively exposed to the current rate backdrop and explains what stands out for income focused portfolios.

The three stocks covered next are just a sample, and the full screen surfaced 16 more large, income focused companies with equally compelling stories that are not included here. To see the complete Defensive Dividend Stocks list, identify candidates that match your own risk profile, and analyze them side by side, head straight into the Defensive Dividend Stocks screener.

MGE Energy (MGEE)

MGE Energy is a regulated utility holding company based in Madison, Wisconsin that supplies electricity and natural gas to around 170,000 customers through a mix of coal, gas and growing renewable sources, as well as transmission and battery storage services. The group’s market cap of about US$3.03b places it firmly in mid cap territory for U.S. utilities.

Income focused investors may want to pay attention to MGE Energy in light of rising rate expectations. Regulated utilities are often viewed as defensive, and MGEE combines that profile with recent earnings momentum and a long record of paying dividends, even if the current yield is a moderate 2.37%. There are trade offs, though. The stock trades on a P/E above its estimated fair level and relies heavily on debt funding, while free cash flow coverage of the dividend looks thin. How those strengths and pressure points balance out as the Fed stays hawkish is an important consideration for investors.

MGE Energy’s steady earnings and dividend record sit against a rich P/E and tight cash coverage, which raises a sharp question. What does the full 3 key rewards and 2 important warning signs reveal about how this balance could shift next?

Build your own defensive dividend shortlist

MGE Energy and the two other stocks in this article all came from a single screener, but the real edge comes when you set your own rules. Use our flexible Screener to mix filters like valuation, dividend strength, risks and balance sheet quality, or start with one of our curated Investing Ideas.

Genie Energy (GNE)

Genie Energy is a Newark based energy services company that sells electricity and natural gas to households and small businesses in several deregulated U.S. markets, while also developing and operating utility scale solar projects and distributing solar equipment. Most of its revenue, about $480.7 million, comes from the Genie Retail Energy segment, with Genie Renewables contributing around $26.7 million from solar projects and related services. The stock sits in small cap territory with a market value of roughly $368 million.

Genie Energy sits at the crossroads of traditional retail energy supply and growing interest in distributed solar and advisory services. This gives the business more than one way to generate income for patient investors. The company is still digesting a sharp drop in recent earnings, thinner profit margins around 4%, and an uneven dividend record. It continues to return cash through regular payouts and has retired more than 13% of its shares since 2013. In a world of rising rates, where predictable cash flows and energy demand can look appealing, the key question is whether Genie can keep tightening its operations and managing regulatory and wholesale price risks so that its defensive income profile holds up when conditions stay tough.

Genie Energy sits between retail power and solar growth, yet many investors still treat it as a simple utility. Get the 2 key rewards and 2 important warning signs that shows where its income story could surprise or disappoint.

Meridian Energy (NZSE:MEL)

Meridian Energy is a Wellington based electricity generator and retailer focused on hydro, wind, solar and battery storage across New Zealand, Australia and the UK, selling power under the Meridian Energy and Powershop brands and also offering solar installation, software and insurance services. Most of its revenue comes from New Zealand operations, with NZ Wholesale contributing about NZ$4.24b and NZ Retail about NZ$1.58b, partly offset by NZ$1.63b of inter segment eliminations and NZ$33 million from other activities. The company sits in large cap territory with a market value of roughly NZ$15.1b.

Meridian Energy provides exposure to renewable power with a long list of consented projects, from repowering the Te Rere Hau wind farm to major solar farms at Morrinsville and Bunnythorpe that could add scale over the rest of the decade. Forecast earnings growth of about 26% a year and the potential move into profitability within three years sit alongside a 3.74% dividend yield and a share price that is estimated to trade well below fair value. This combination may be of interest to income-focused investors. However, current losses, pressure on revenue, high reliance on external borrowing and dividends that are not well covered by earnings all raise questions about how resilient that income will be if conditions stay tougher for longer.

Meridian Energy’s pipeline of renewable projects, estimated earnings lift and current losses create a story that feels only half finished. The analyst forecasts for Meridian Energy lays out how this trajectory could shift if one key pressure point changes.

Seeking Fresh Alternatives Before Others Do

New ideas can move fast. Some stocks sit under the radar for now, then break out once momentum builds and the crowd catches on. Scan these fresh ideas and get in early.

• Spot companies quietly building strength and use the curated list of solid balance sheet and fundamentals (50 results) to find businesses that may hold up when weaker balance sheets start dropping away.
• Chase income potential with staying power by checking the hand picked 8 dividend fortresses that focuses on companies where high yields and resilient cash generation currently go hand in hand.
• Track where automation momentum could be flying next by reviewing the under the radar 35 robotics and automation stocks and see which stocks might benefit if demand for efficiency accelerates.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.