Roger S. Conrad

Utility stocks offer exposure to underappreciated growth drivers.

TransCanada Corp agreed to acquire Columbia Pipeline Group for US$25.50 per share.

We take advantage of the rally to reduce risk in the Aggressive Income Portfolio.

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.

Last Week, the US Dept of Energy’s Advanced Research Projects Agency (ARPA-E) held its annual Energy Innovation Summit in Washington, DC. Senate Energy & Natural Resources Committee Chairwoman Lisa Murkowski (R-AK), former Vice President Al Gore and Dept. of Energy Secretary Ernest Moniz got most of the attention. But the real stars were hundreds of new technologies on display with the potential to dramatically enhance the grid’s efficiency, reliability and affordability. Energy utilities will be the ultimate beneficiaries of these advances. Still able to access low-cost capital and armed with regulators’ support, dozens of electric companies have stepped up investment in transmission and distribution systems, as well as renewable energy and storage solutions. These investments boost utilities’ rate base and, by extension, earnings and dividends. Utilities’ biggest growth opportunities come from growing demand for renewable energy and low-cost natural gas—topics that we explored at length in the February issue of Conrad’s Utility Investor. Regulated electric and gas utilities historically have posted annual earnings growth in the low single digits; these trends, coupled with the innovations in energy storage, should enable some of our favorite names to increase their cash flow and dividends at an accelerated rate. All of our Portfolio holdings have reported fourth-quarter results, as have most of the names in our coverage universe. This month’s update to the Utility Report Card has all the details and our latest assessment of more than 200 essential-service companies. We also raised our proprietary Quality Grades on nine stocks and downgraded 11.

On Sept. 23, 2015, we issued an Alert swapping NRG Energy (NYSE: NRG) out of the Aggressive Income Portfolio and into NRG Yield (NYSE: NYLD), the yieldco associated with the ailing power producer. The swap couldn't have been timed better.

This Canadian pipeline owner boasts a strong balance sheet, relatively low cost of capital and a robust backlog of growth projects.

Nine of the more than 200 companies covered in our Utility Report Card have slashed their dividends since we posted the February issue of Conrad’s Utility Investor.  

Utilities take the crown as the S&P 500’s top-performing sector this year, with the group generating a total return of 10.5 percent. Much of this strength reflects the appeal of utilities’ resilient cash flow and generous dividends, qualities that make the sector a good place for investors to hide out in uncertain times. But every stock takes a hit in a bear market; savvy investors should bide their time and wait for valuations to improve.

Aqua America continues its time-tested strategy of making smart capital expenditures and building scale in attractive jurisdictions through bolt-on acquisitions.