Roger S. Conrad

Formerly known as FPL Group, NextEra Energy (NYSE: NEE) has nearly doubled the return on the Dow Jones Utility Average over the last decade and topped the S&P 500 by 70 percentage points, while emerging as America’s favorite power company.

With an industry-leading 84,000 miles of energy pipelines, 157 terminals and related assets, Kinder Morgan Inc's (NYSE: KMI) results aren’t just a progress report, but reliable portents for the rest of the business as well.

Bankruptcy court is fundamentally a negotiation, and this week PG&E Corp (NYSE:PCG) gained considerable leverage for its upcoming filing.

A year ago, I highlighted “lofty expectations” as the primary danger to the Conrad’s Utility Investor coverage universe. That risk is no longer so acute after a year of generally robust earnings and sliding share prices. Rather, the key question is whether companies can maintain profit and dividend growth momentum, should the macro environment darken in 2019 as so many fear. And certainly there are plenty of causes for concern on that front, ranging from trade tariffs and potential fallout from a record-long US government shutdown to still-tightening monetary policy. This month’s Utility Report Card highlights how all 200-plus companies we track stack up on the five criteria behind our Quality Grades: Dividend growth sustainability, revenue reliability, regulatory relations, refinancing/financing ability and operating efficiency. As the 2018 returns shown in the comments also demonstrate, even A-rated companies meeting all five can see red ink in a given year. But being strong on the inside is the best forecaster for an eventual recovery. And it’s also the most effective protection for investors if the economy and stock market resume their vicious pre-Christmas holiday slide. This is also the time of year when we publish our sector-by-sector forecast, along with picks and pans for each in the coming year. Last year’s favored stocks once again beat the bad and ugly, though almost everything followed the overall market underwater. I expect a much better result this year, in large part because investor expectations are far lower across the board for essential services companies.

Utilities that go to war with regulators should normally be avoided. The exception this year is Australia’s dominant electric company AGL Energy (ASX: AGL, OTC: AGLXY). The country holds national elections this year. By every poll, the opposition Labor Party is headed for a potentially big win. And in response, the ruling Liberal/National Party coalition has turned to utility bashing to score political points.

NextEra Energy (NYSE: NEE) is both America’s leading producer of wind and solar energy and operator of arguably its healthiest electric utility. So it’s small wonder it’s also the country’s most power stock.

In 2018, the Conservative Income Portfolio lost 0.76 percent of its value, with our 20 holdings increasing dividends an average of 7.3 percent. The Aggressive Holdings lost -4.9 percent while raising payouts an average of 14.3 percent from the year before. The Top 10 DRIPs slipped -5.8 percent with average dividend growth of 5.9 percent.

Last year, 20 Utility Report Card coverage universe members cut dividends at least one time. That’s a fraction of the 126 that raised payouts, including all the Conservative Holdings and Top 10 DRIPs. But it’s more than we’ve seen since the 2008-09 Bear Market. Now for some good news: Even if the global economy does slow this year, most essential services companies have adjusted enough to maintain their current payouts the next 12 months. That should even include most current members of the Endangered Dividends List, despite the weaknesses that landed them there. See this issue’s URC comments for complete analysis of how the coverage universe measures up on our five quality criteria: Payout sustainability, revenue reliability, regulator relations, refinancing risk and operating efficiency.