Roger S. Conrad

Call it a quadrennial ritual: In the first weeks after the US presidential election, investors scramble to find the trades that will work best under the incoming administration. Invariably, they forget that US government policies are just one of many factors that can influence corporate earnings and investment returns. Eight years ago, the conventional wisdom assumed that the Obama administration would be toxic for the stock market, especially the health care, financial and energy sectors. With only a few weeks left in Obama’s second term, the S&P 500 is up 210 percent, with the health care and financial sectors outperforming. US oil and gas production also reached new heights under Obama’s watch. Conversely, despite rising adoption of renewable energy, Guggenheim Solar (NYSE: TAN)—an exchange-traded fund that offers one-stop exposure to solar-power stocks—burned up almost 80 percent of its value during Obama’s terms in office. Like Obama in 2009, President-elect Donald Trump will take office with his party in control of Congress, creating the potential for the new administration to deliver on promises to cut taxes, reduce regulation and promote infrastructure investment. The past eight years reinforce that Republicans may not accomplish everything they set out to do.

At the start of the new year, we roll out our top picks and pans among the various segments represented in our Utility Report Card. Last year’s picks generated an average total return of 22.9 percent, while our pans posted a 2.1 percent gain. We hope to build on this success in 2017.

Two of our three model Portfolios outperformed the S&P 500 and Dow Jones Utility Average handily last year, while our aggressive picks lagged. We review what went right and what went wrong, with an eye toward refining our process.

Rising interest rates will exert additional strain on all the names in our Endangered Dividends List. And the higher rates go, the greater the risk that these stragglers will seek to conserve cash by reducing their payouts.

A lack of dividend growth has weighed on this stock's performance, but this utility continues to make progress toward resuming regular payout increases.

This high-yielding preferred stock could reward aggressive investors with big returns. The company's fourth-quarter results and full-year guidance for 2017 will go a long way toward determining whether we hold our fold.

Our basket of junk bonds outperformed in a challenging fourth quarter.

A dividend cut hits investors with a double-whammy, reducing their current income and catalyzing a sharp selloff in the stock. In contrast, a steadily increasing payout eventually will push a company’s share price higher, particularly when it’s supported by the underlying business.

The December 2015 issue of Conrad's Utility Investor emphasized the importance of diversification to generating differentiated returns in 2016. Despite a few laggards, that article's picks outperformed, generating an average total return of 18.6 percent. This year, we opted to highlight 10 trends that should drive outperformance.

Buying a stock when others are selling can be just as challenging psychologically as taking a profit on an investment that seems to rally every day. However, these incremental moves can help to juice your portfolio’s returns during periods of volatility. Paying close attention to valuation worked well for us in 2016 and will again in 2017, when we’ll learn the extent to which an expansionary fiscal policy can prolong the bull market and accelerate economic growth. This month’s feature article highlights 10 trends that could drive returns for the more than 200 essential-service stocks in our coverage universe.