The Dow Jones Utilities Average finished the week at a record high and the index’s price-to-earnings ratio has blown out to levels last seen in early 2008.
Although this froth in the market increases the bar of expectations for utility stocks and heightens the risk of a pullback, our favorite utilities enjoy ready access to low-cost capital and ample opportunity to grow their rate base through investments in renewable energy, pipelines and gas-fired power plants.
The recent momentum driving utility stocks higher reflects concerns about the US economy and the market’s growing realization that the Federal Reserve will struggle to raise interest rates this year. In this environment, investors gravitate toward utilities’ resilient cash flow and above-average dividend yields.
Whereas reliable earnings are enduring features of regulated utilities, the influx of capital driving these stocks to new highs rests on something far more fickle: investor sentiment. When momentum investors find an excuse to take profits off the table, the sector will take a hit, regardless of underlying fundamentals.
In this environment, investors should take advantage of the rally to exit riskier names, take some profits off the table in their winners (14 Portfolio holdings trade above our buy targets) and assemble a shopping list of stocks to buy when the inevitable pullback occurs.
Our basket of fixed-income securities has done well, thanks to the rally in bond prices.
All our Portfolio holdings have reported results for the quarter ended Dec. 31, 2016. We review how the latest batch fared and their outlook for 2016.
We examine the latest mergers and acquisitions, including a rumored deal that makes a world of sense for both parties and a takeover that may or may not make it to the finish line.
We review fourth-quarter results for the bulk of our Portfolio holdings.
The upcoming election season is heating up, but overheated valuations are a bigger concern for investors in utility stocks.
The minimal premium involved in Great Plains Energy's proposed takeover offer for Westar Energy underscores how stretched valuations have become in the utility sector.
After plunging almost 50 percent from early May 2015 to mid-February 2016, the Alerian MLP Index has defied the critics and torched slow-to-react short sellers by surging 45 percent since its nadir. But the easy money has been made: Investors must now focus on which names are best-positioned to grow in an environment where energy prices remain lower for longer.
Consolidated Edison's recently announced joint venture with Crestwood Equity Partners LP is the latest example of a utility leveraging its position as a demand-side customer and its low cost of capital to pursue ambitions in the midstream segment. Expect this trend to gain momentum in coming quarters.
Exelon Corp finally closed its acquisition of Pepco Holdings. Could another deal be in the utility's future?
Roger's favorite utilities for investors seeking superior price appreciation by taking calculated risks.
Harness the tried and true wealth-building power of rising dividends.
Nothing compounds wealth like reinvesting a rising stream of dividends.
Warning: Falling Dividends.
Roger's current take and vital statistics on more than 200 essential-services stocks.