Roger S. Conrad

Years from now, market historians may look back on 2020 as a relatively quiet year for utility stocks—with the Dow Jones Utility Average posting a 1.5 percent return including dividends. Even a cursory glance at my graph reveals anything but a tranquil time. In retrospect, best in class essential services companies demonstrated resilience to the historic pandemic that exceeded even my high expectations.

Gas companies strengthened their case during pandemic-wracked 2020 by demonstrating extremely stable economics, paying generous dividends backed by ultra-secure and growing cash flows, and still remaining small enough to have perennial takeover appeal. Those strengths promise to make natural gas distribution a hot commodity again in 2021.

At first glance, MDU Resources (NYSE:MDU) shows a fairly discouraging investment profile. But there are three very good reasons to expect much better in the next 12 months.

Strong regulated utilities combined with long-term contracted renewable energy generation: That’s the NextEra Energy (NYSE: NEE) business model. And not only does the formula work well, it’s become quite popular with investors.

“Big Mo” is back in style for stocks. The result is investors continue to crowd into this year’s biggest winners while shunning underperformers, even as big blue chip averages like the S&P 500 and NASDAQ 100 set one new high after another.

In our coverage universe, momentum has been very strong since last month’s election for anything to do with renewable energy. And the result is several favorites are now ripe for taking partial profits, despite strongly bullish long-term outlooks.

Regulation is the straw in my Quality Grade system that most often stirs the drink. And when the result is an increasingly volatile mixture, it’s usually best for investors to stand clear.

This is a stock market that plays favorites. And clearly AT&T Inc (NYSE: T) hasn’t been one this year, with investors alternately grousing about high levels of debt, pandemic-affected results at WarnerMedia and dividend safety.

We still have a few weeks left in 2020. But whatever happens, this will go down as one of the most eventful years in stock market history. There’s certainly plenty to recap already. The rapid swing from historic profit-taking opportunity in mid-February to equally compelling Dream Buy barely a month later is certainly without precedent in my career.

Avoiding companies at elevated risk to dividend cuts is a time-honored tenet of income investing. That’s because reductions typically add insult to injury by triggering selloffs in offending stocks.