Roger S. Conrad

Is the Federal Reserve about to wrap up this tightening cycle? Many investors appear to be betting on it, with the Nasdaq 100 up almost 20 percent year-to-date.

Tech is the 21^st century’s most interest rate-sensitive sector because stocks trade on the promise of future cash flows. But traditional income stocks too enjoyed a big rebound last month: After being deep in the red, the Dow Jones Utility Average is now solidly in the black. And a substantial majority of stocks in my Utility Report Card had a positive Q1, while adding to gains so far in April.

In late January, NextEra Energy Partners (NYSE: NEP) management extended guidance for 12 to 15 percent dividend growth through calendar year 2026. That’s off a current yield of nearly 5.3 percent, implying an end of period payout on the current price of between 8.3 and 9.2 percent.

Between mid-2020 and summer 2022, shares of Aggressive Holding National Fuel Gas (NYSE: NFG) roughly doubled—for a time exceeding my “consider taking profits” level. They’ve since retreated about -25 percent and are positioned to make another run.

All in all, it was a pretty flat Q1. The Dow Jones Utility Average finished lower by about -2 percent, including dividends. And that was a mark all three of our model portfolios were able to top: On average, Aggressive Holdings were up 3.06 percent, Conservative Holdings slipped -0.79 percent and Top 10 DRIPs retreated -0.96 percent.

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.