After bottoming shortly after the US presidential election, the Dow Jones Utility Average has gained more than 13 percent. This rally has propelled utility valuations to the frothy levels that prevailed last summer, just before the sector sold off in the second half of the year.
Investors have plenty of reasons to be optimistic this spring. We expect a strong first-quarter earnings season and, as we pointed out in the November issue, US election results favored telecom sector’s big dogs as well as many gas, electric and water utilities.
Utility stocks have also posted strong returns, despite the Federal Reserve’s efforts to normalize monetary policy. The Dow Jones Utility Average has generated a total return of more than 23 percent since the Fed first increased interest rates this cycle, outperforming the S&P 500 by almost 10 points.
However, frothy valuations make it difficult for popular utility stocks to generate additional upside. NextEra Energy (NYSE: NEE), for example, appears to have run out of gas now that the stock is in the $130s. And the sub-2 percent yields paid by the highest flyers aren’t much compensation for sticking around in the hope that these stocks will defy the odds and climb higher.
A pullback in the broader market remains the most likely catalyst for utility stocks to revert to the mean. High valuations across the board give investors plenty of reason to worry about how much longer this aging bull market can last.
Utility stocks have continued to rally, propelling a record 20 of our Portfolio holdings above our value-based buy targets--a high-quality problem. We also highlight the solid fourth-quarter results posted by a handful of our aggressive picks.
We analyze fourth-quarter results from some of the biggest companies in our model Portfolios and explain why one of our Aggressive Income Portfolio holdings surged 11 percent after reporting earnings.
Our basket of junk bonds outperformed in a challenging fourth quarter.
A dividend cut hits investors with a double-whammy, reducing their current income and catalyzing a sharp selloff in the stock. In contrast, a steadily increasing payout eventually will push a company’s share price higher, particularly when it’s supported by the underlying business.
The growing popularity of green bonds creates opportunities for savvy investors and can help utilities to reduce their cost of capital.
ARPA-E's Energy Innovation Summit, which takes place next week, could give us early insights into President Trump's energy policies.
Could Donald Trump's support for the controversial Keystone XL and Dakota Access pipelines foment local opposition to other energy projects?
The December 2015 issue of Conrad's Utility Investor emphasized the importance of diversification to generating differentiated returns in 2016. Despite a few laggards, that article's picks outperformed, generating an average total return of 18.6 percent. This year, we opted to highlight 10 trends that should drive outperformance.
What does the utility sector’s budding relationship with big tech mean for investors?
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.