Takeovers, tax reform and President Trump dominated the financial headlines in 2017—and all signs point to this trend continuing well into the new year.
When it comes to investment returns, however, quality remains the most important theme. And with valuations still near records, the bull market a year older, and volatility picking up in the utility sector, owning best-in-class names will be more critical than ever to delivering differentiated returns in 2018.
This month’s feature article highlights key trends, as well as our picks and pans, for nine categories of essential-service companies. We also revisit our best ideas from the start of 2017; these picks delivered an average total return of 19.6 percent, walloping the 5.8 percent gain posted by our pans.
Utility stocks often underperform in January, as portfolio managers allocate more capital to aggressive names. This year, the Dow Jones Utility Average’s performance has taken a hit from concerns that California utilities could face billions of dollars in liabilities related to the catastrophic wildfires that ravaged the state.
Although weakness in utility stocks has taken some of our Portfolio holdings down a bit, our position in ProShares UltraShort Utilities (NYSE: SDP) has gained about 15 percent since mid-November. Meanwhile, the pullback in utility stocks has brought a few of our Portfolio holdings below our value-based buy targets.
Our commitment to diversification has also paid off, with several of our holdings rallying in the new year despite weakness in utility stocks. Conservative Income Portfolio holding Pembina Pipeline Corp (TSX: PPL, NYSE: PBA), for example, hit a new high last week, benefiting from the rotation into the energy sector. That’s why we stick with stocks that lag in a given year—as long as they’re backed by high-quality businesses.
Readers should check out this month’s update to the Utility Report Card, which features our take on how US tax reform will affect the each of the roughly 200 companies in our coverage universe. We also revisit the factors behind our proprietary Quality Grades.
Regulated gas, electric and water utilities won’t benefit directly from the Tax Cut and Jobs Act’s signature change: a reduction in the top corporate tax rate to 21 percent from 35 percent. But tax reform still creates a number of opportnities for regulated utilities, especially the strongest operators.
Two of our Portfolio holdings announced third-quarter results after the November issue of Conrad's Utility Investor hit the web.
Third-quarter earnings season is in full swing, bringing some upside and downside surprises for our Model Portfolio holdings.
Rising electricity and natural-gas prices in Australia have padded AGL Energy's bottom line and contributed to tensions surrounding the company's long-standing plan to close the Liddell coal-fired power plant in 2022.
Utility stocks have lagged in the new year, but developments on the policy front largely have played out in the sector's favor.
We explore what the Nebraska Public Service Commission's approval of the Keystone XL pipeline's cross-border segment really means for TransCanada Corp.
The internet of things could be a game-change for electric utilities.
The Trump administration has clearly gone all-in on turning the supposed war on coal into a war for coal, but the outcome will depend on electric utilities and power companies. We'll focus on the risks and opportunities associated with government intervention when we attend the Edison Electric Institute's financial conference in November.
Massive distribution cuts from the likes of Plains All-American Pipeline LP have severely damaged midstream master limited partnerships' (MLP) reputation among income investors. But our favorite MLPs trade at favorable valuations and offer exposure to compelling volumetric growth stories.
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.