Roger S. Conrad

We’re barely three months in. But already, 80 Utility Report Card companies have announced dividend increases for 2023. I expect many others to join them in the next few months.

The growth formula for regulated utilities hasn’t changed this year: Electric, gas and water companies identify what needs fresh investment—to bring on new business and residential customers, increase efficiency, improve safety and environmental remediation and/or build new facilities and assets to accommodate higher volumes.

Last weekend, a Wall Street Journal editorial pointed out the cost of “balancing the grid” added GBP150 to UK household electricity bills in 2022. The authors’ attempt to blame the entire cost on adoption of renewable energy is quite a stretch, as it ignores the larger role of erratic weather and availability of other power plants.

Their broader point that wind and solar are still challenged by intermittency, however, is spot on.

The S&P 500 is still holding onto about half its early 2023 gains. But like other dividend-paying stocks, utilities have gone into reverse this spring, with the Dow Jones Utility Average underwater by nearly 6 percent year-to-date. High inflation and rising interest rates are certainly playing a role in the underperformance. But a more important reason may be investors’ disappointment that last year’s Inflation Reduction Act didn’t spark a more robust industry response.

NextEra Energy (NYSE: NEE) was the first major mover in American renewable energy—forging relationships across the country with prospective customers, local governments and suppliers years ahead of the competition en route to building its current 65 gigawatt capacity operating portfolio. And the company is set to continue that dominance, coming off a record year of 8 GW of new contracts and 5 GW start ups despite supply chain challenges. The Florida Power & Light utility is developing what management calls a 160 GW solar, storage and hydrogen opportunity over the next 20 years. And unregulated NextEra Energy Resources has $71 billion total assets, 30 GW of generation and a backlog of signed contracts for 19 GW more.

The stocks in each portfolio all have the fundamental objective to build wealth. But they’re set up to do it in different ways.

Fortum OYJ (Finland: FORTUM, OTC: FOJCF) is breaking its annual dividend for calendar 2023 into two semi-annual payments for April and October. The total of 91 Euro cents is an effective 20 percent cut from 2022’s annual payment of EUR1.14 per share. Management telegraphed a reduction late last year, when the largesse of the German government allowed it to escape the meltdown of Uniper SE. The company ultimately exited the power generation company and energy retailer it had spent years pursuing with a loss of roughly EUR6 billion.