Roger S. Conrad

About a quarter of the 172 Utility Report Card members have reported calendar Q4 results and updated guidance. The top takeaway: There’s still absolutely no sign of the utility earnings Armageddon that’s now reflected in sector stocks’ bear market-like prices.

One reason for utility business strength is simply rising demand. Rapid adoption of artificial intelligence has massively and relatively suddenly begun ramping up electricity usage at data centers. And as my feature article highlights, utilities are increasing investment plans in response, which are the primary drivers of their long-term growth.

For Conservative Holding Brookfield Renewable (TSX: BEP-U/BEPC, NYSE: BEP/BEPC), last year was the best for business yet. Funds from operations per unit increased 7.1 percent, supporting a 5.2 percent dividend increase—which could have been meaningfully higher had management not elected to accelerate investment. Brookfield added a record 5 gigawatts of renewable energy projects to its backlog during the year, well ahead of the previous year’s 3.5 GW. That boosted its “advanced stage” development platform to 24 GW. And 90 percent of the new contracts are with corporate customers, much tied to data centers seeing accelerating electricity demand from artificial intelligence.

Aggressive Holding Avangrid Inc (NYSE: AGR) rang in the New Year with two major announcements: The company terminated a merger agreement with New Mexico utility PNM Resources (NYSE: PNM) that dated back to October 2020. And first electricity flowed to the New England power grid from 800-megawatt capacity Vineyard 1, the first commercial scale offshore wind facility in the US. Avangrid also affirmed its 2023 earnings per share guidance range of $2.20 to $2.35. But investor skepticism runs deep the combination utility/contract power producer will maintain long-term earnings growth guidance of 6 to 7 percent, demonstrated by the stock’s current price of just 10.9 times expected next 12 months earnings.

Dividend increases—even big ones—don’t necessarily move stock prices. That much is clear from the mostly lackluster year-to-date performance of the 24 Utility Report Card companies raising dividends so far in 2024. Over time, however, prices of dividend paying stocks will follow payouts higher. And in the meantime, there are few more reliable outward signs of a company’s inner grace—that is, that the underlying business is still solid and the underlying value proposition of the stock is intact.

So far in 2024, some two-dozen Utility Report Card coverage universe companies have raised dividends. And as this month’s comments indicate, that number could well treble over the next month, as more release Q4 numbers and update guidance. In contrast just one company, Orsted A/S (Denmark: ORSTED, OTC: DNNGY), has announced a dividend cut so far this year. The company wasn’t on the Endangered Dividends List. But neither was the move a real surprise and it was clearly strategic, demonstrated by the stock’s stable performance since last week’s announcement.

From Asimov’s benevolent immortal robots to the hellscape of “The Terminator,” artificial intelligence has been the stuff of popular imagination since the early 20^th century. Now, the advent of “generative AI” is reshaping reality, with profound consequences for industries across the board. The basic idea is that computer systems can be “trained” on data to perform tasks that have historically required human intelligence. And depending on who you talk to, the possibilities are literally limitless, including outright replacement of human workers in professions now considered outside the purview of automation such as the arts.