Roger S. Conrad

These 10 trends should drive outperformance for investors who play them the right way.

Sunoco Logistics Partners LP's proposed acquisition of Energy Transfer Partners LP will result in a stealth distribution cut of 27 percent for the latter's unitholders. Meanwhile, Ferrellgas Partners LP slashed its payout by 81 percent. Readers who follow our Endangered Dividends List would have avoided this pain.

A transformational deal enabled this power company to resume regular dividend growth. Now, Illinois lawmakers have granted the company zero-emission credits to ensure that its nuclear power plants in the state don't run at a loss.

All business development companies are a bit of a black box, but the recent selloff in this stock reflects overdone concerns that the incoming Trump administration will pursue policies that curtail investment in renewable energy.

We sift through the pending acquisitions involving companies in our Utility Report Card and highlight some potential takeover targets.

What does the utility sector’s budding relationship with big tech mean for investors?

This morning, Sunoco Logistics Partners LP announced the all-stock acquisition of Energy Transfer Partners LP--a transaction that dramatically changes the acquirer's profile and results in a 27 percent distribution cut for the target's unitholders. Here's our take.

The S&P 500 Utilities Index has tumbled in the wake of the 2016 election, as the conventional wisdom holds that the results were bad for utility stocks. Rising interest rates and the prospect of improved economic growth if the Trump administration delivers on its promised fiscal stimulus have given portfolio managers an excuse to rotate out of utility stocks and into cyclical fare. Unsustainably high valuations made this decision all the easier. Conrad’s Utility Investor subscribers who followed our lead over the summer and took partial profits on their big winners and added exposure to ProShares UltraShort Utilities (NYSE: SDP) should be doing reasonably well, all things considered. This exchange-traded fund, which delivers two times the Dow Jones US Utilities Index’s inverse daily performance, has rallied by about 25 percent—and we see the potential for more upside. However, the most important point to take away from this issue of Conrad’s Utility Investor is that the underlying business conditions for our favorite utilities haven’t changed. The sector remains in excellent financial shape and has its best growth prospects in decades. Unfortunately, valuations remain frothy. Election 2016 has created far more opportunity than risks for best-in-class utilities. But potential regulatory tailwinds are only one of the many factors that will drive returns going forward.  

Our bet against utility stocks has continued to pay off, while the selloff in the sector has pulled prices closer to our value-based buy targets. Stay disciplined.

Thanks to 15 years of cutting operating risk and debt, not even a much higher spike in borrowing costs would threaten dividends of best-in-class utilities. With ample cash flow and minimum near-term borrowing needs, they can hold off until pension funds and other institutional buyers must return to the table. Unfortunately for the weaker credits covered in our Utility Report Card, rising interest rates could ratchet up the pressure on their balance sheets and force them to redeploy cash that they currently pay out as dividends.