Roger S. Conrad

Since mid-December 2015, the Dow Jones Utilities Average has rallied more than 12 percent—an impressive performance in what has been a dismal year for US equities. These returns vindicate those of us who resisted the conventional wisdom that rising interest rates spell doom for utility stocks, increasing these companies’ costs of capital and reducing the value of future dividends. But this success brings a new challenge: Many of our favorite utility stocks have rallied above our buy targets. Although these stocks trade at lofty valuations today, weakness in the US economy and deterioration in key technical indicators suggest that equities could suffer further downside in coming months. Keep your powder dry and stay focused. Our favorite utilities boast low costs of debt and equity capital that put them in prime position to accelerate their earnings and dividend growth by investing in renewable energy and gas distribution and transportation. My colleague Elliott Gue has called for utility stocks emerge as the top-performing sector in the S&P 500 this year—I can’t say that I disagree. But investors must remain selective.

This month, we’ve dropped six oil and gas producers from the Utility Report Card because these names have little in common with the utility stocks at the core of our investment strategy, aside from paying (or formerly paying) dividends.

Overly aggressive guidance could land this master limited partnership in the penalty box.

The sudden meltdown in the high-yield bond market doesn’t show any signs of letting up, especially with the US economy continuing to weaken. But with pain comes opportunity: For the first time since 2009, fixed-income securities issued by essential-service companies trade at favorable valuations.

In a bear market, the weaklings always suffer the most. Investors should reduce risk, consider taking profits on any names that have rallied to unsustainable valuations and keep an eye out for opportunities to add to or establish positions in high-quality names.

Our Endangered Dividends List has a new member, while one former resident returns to the general population after slashing its payout for a second time.

With the US and global economies softening and credit markets tightening, a company’s relative cost of capital can determine whether it’s a winner or a loser.

In the fourth quarter, the telecom sector's big dogs continued to extend their lead over the also-rans.

Dominion Resources (NYSE: D) announced the utility sector’s first major takeover for this year, reaching an agreement to acquire Utah-based Questar Corp (NYSE: STR) for $25 per share, or about $4.4 billion.

The utility sector's implosion in 2002 and 2003 has some important lessons for MLP investors.