Roger S. Conrad

Our best in class utilities and essential services companies proved their resilience in pandemic-riddled 2020.

I’ve been an adult volunteer for Scouting BSA since my oldest son entered Tiger Cubs almost 20 years ago. So I wasn’t going to pass up the opportunity to accompany my youngest to Philmont Scout Reservation in northern New Mexico earlier this month, my third and likely final trek to scouting’s paradise.

Unlike the highways my oldest son and I took on our cross-country journey in early June, there’s not a lot of connectivity in the backcountry. And I’d never have been able to stay off the grid were it not for the support of Elliott Gue, my partner of more than 8 years at Capitalist Times.

Nonetheless, as with the June trip, I picked up several investment insights I’d like to share with you now.

America’s electric utilities are on track for a 10^th consecutive year of record capital spending in 2021, according to numbers compiled by the Edison Electric Institute.

That’s closely followed by the $70 billion plus the country’s five largest communications companies plan to spend this year, rolling out 5G wireless and expanding fiber broadband connections. And while pipeline construction remains highly contentious in many places, spending on gas and water systems also remains at elevated levels.

The history of utilities is packed with examples of management getting badly burned by investing outside regulated operations. That tends to keep stocks of companies that do at big discounts to their peers, as Southwest Gas Holdings (NYSE: SWX) is at 15.7 times expected next 12 months earnings.

Conservative Holding Sempra Energy (NYSE: SRE) this week raised the mid-point of its 2021 earnings guidance range to $8.05 per share, a significant leap from the previous $7.80. That’s just one of the highlights from its June 29 Strategic Update and Financial Outlook.

The Aggressive Holdings returned an average of 7.95 percent in the first half of the 2021. Conservative Holdings came in at 5.28 percent, while Top 10 DRIPs did the best at 12.34 percent. The average return for all 41 stocks across the portfolios was 8.1 percent.

A defensive reputation at a time when most investors are reaching for growth rather than income, concern about interest rates and inflation, heavy indexing to “green” stock indexes that faltered this spring and an unexpectedly severe winter storm that triggered a natural gas price spike.

DTE Energy (NYSE: DTE) has declared a dividend of 82.5 cents for payment in October. That’s -24 percent lower than what it’s paying this month. But it’s hardly a payout cut in the conventional sense.

Too many small owners lacking critical scale, and unprecedented roadblocks to new energy pipeline infrastructure was at the core of the wave of US oil and gas midstream dividend cuts and bankruptcies of the past few years. But now those same forces are spawning something considerably more positive for investors.

Bloomberg New Energy Finance reports 5.8 gigawatts of operating US solar generation is now co-located with energy storage as of May 2021. And there’s another 28 GW combined with 39 GW hours of battery storage in some stage of permitting and securing financing for start up in the next couple years. Including storage capacity at facilities is the biggest step yet tackling what’s still solar energy’s biggest hurdle to growth, intermittency. And as battery technology develops, the industry will near its ultimate goal of making solar plus storage actually dispatchable to grid operators.