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Issues

A Big January But Conservative is Key

By Roger S. Conrad on Feb. 10, 2020

For the eighth year in the past 10, utility stocks finished January in the black. Every time but 2015, they finished the year that way, including a 27.3 percent boost in the Dow Jones Utility Average for 2019.

Conversely, you’d have to go back to 1987 to find a year when a strong January was followed by a sector selloff later on. Every other major DJUA decline was instead preceded by a first month selloff including 2008, 2002, 2001 and 1994.

A big January is therefore a favorable portent for our returns in 2020. So are the calendar Q4 earnings and guidance updates we’ve seen so far for Utility Report Card coverage universe companies, highlighted in the comments of this month’s table.

Looking for Loaded Laggards

By Roger S. Conrad on Jan. 12, 2020

It was a great year for utility stocks with the Dow Jones Utility Average returning 27.3 percent. It was also the best yet for our loaded laggards strategy: Conservative Holdings returned 35.1 percent, Aggressive Holdings 31.2 percent and the Top 10 DRIPs 36.5 percent.

One key catalyst for our outperformance was a spike in investor interest for anything to do with renewable energy. We also mostly eschewed stocks with historically valuations and successfully avoided companies with weakening underlying businesses.

A Stock Picker’s Market for Value

By Roger S. Conrad on Dec. 9, 2019

Now more than ever, it’s a stock picker’s market for utilities and essential services.

Last month, the Dow Jones Utility Average basically ran in place. But top-performer AES Corp (NYSE: AES) returned 10 percent, while the biggest loser Public Service Enterprise Group (NYSE: PEG) shed 5 percent.

The difference maker was investor expectations. AES beat a relatively low bar with third quarter earnings and updated guidance. Public Service failed a somewhat higher one, despite another solid performance at its core New Jersey utility.

AES is also a leading global adopter of renewable energy technology, including battery storage. And its 90 percent two-year total return—70 points better than the DJUA—was in large part simply closing the gap with sector leaders like NextEra Energy (NYSE: NEE).

Utility Earnings and the Burden of High Expectations

By Roger S. Conrad on Nov. 11, 2019

It was another strong quarter for the nearly 200 essential service companies in our Utility Report Card coverage universe. Of the 95 percent or so reporting so far, only a handful of small telecoms failed to demonstrate underlying business strength.

My number one rule in any environment is to avoid stocks and bonds of companies with weakening underlying businesses. If things are going poorly now, how bad will they get when the economy really slows and/or the cost of capital rises?

Aggressive Hoding Suburban Propane Partners (NYSE: SPH) has yet to report its fiscal fourth quarter. But each of the 38 other CUI Portfolio recommendations reported numbers that either met or beat management’s previous guidance.

Utilities To Triple Growth in 2019-20, Not All Will Advance

By Roger S. Conrad on Oct. 7, 2019

Wall Street consensus projects utility sector earnings growth will reach 6 percent in 2020. That’s triple this year’s anticipated 2 percent.

Accelerating sector growth is in marked contrast to diminished expectations for most industries. But even more impressive is how well insulated the primary drivers are from the macro environment.

For example, many companies will get a boost because they no longer have to issue equity to compensate for lower cash flow due to reduced tax pass throughs. They’ll get another lift from the massive decline in corporate borrowing rates since the start of 2019.

Utilities in the Sweet Spot but High Prices Raise Risks

By Roger S. Conrad on Sep. 8, 2019

Utility stocks set another series of records last month. As a result, price/earnings multiples are again moving toward the stratosphere. Meanwhile, dividend yields are scraping lows last seen immediately prior to the big declines of 2001-02 and 2008-09. 

We’re Still Digging Out Safe High Yields From Stony Ground

By Roger S. Conrad on Aug. 5, 2019

Utility stocks’ key attraction has always been generous dividends. Yet nearly half the companies tracked in our Utility Report Card yield less than 3 percent, and 20 pay less than 2 percent.

Conversely, less than 10 have dividends as high as 8 percent. And most of those should be avoided for safety’s sake.

I’m happy to say it’s still possible to dig safe, high yields from this increasingly rocky ground. That’s the subject of our Feature article.

There’s Still Green to be Made When Valuations Flash Yellow

By Roger S. Conrad on Jul. 5, 2019

The Dow Jones Utility Average hit an all-time high in late June, backed off and is rallying again. The price-weighted index now sells for nearly 22 times trailing 12-months earnings and yields barely 3 percent.

The last time utilities yielded this little was just before the 2007-09 bear market. The only time since the early 1960s the P/E was this high was at the end of 2000, before a nearly 60 percent crash in the wake of Enron’s collapse.

Utility sector business fundamentals have rarely if ever been more secure. That’s the clear message from the break down of my five-part Quality Grade system, which I present in the Utility Report Card. The latest shot in the arm is a steep drop in essential service companies’ borrowing costs.

When You Run with the Bulls, Step Lightly

By Roger S. Conrad on Jun. 9, 2019

Buy American, buy safety and buy yield: Those are three powerful upside drivers for utility stocks this spring, as major sector averages have made one new high after another.

Investors who choose to run with the bulls now, however, should have an extra ounce of caution. Not only are utility stock valuations at levels we haven’t seen since late 2000.

But as I point out in the Feature article, much of the buying power behind the rise doesn’t actually stem from decisions made by individual investors or even money managers. It’s the result of buy signals for algorithms that control vast and growing pools of “passively managed” money.

Utility Earnings Growing but Valuations Rise Faster

By Roger S. Conrad on May. 8, 2019

The fear the US/China trade deal might not get done is again roiling the global stock market. So far, however, selling hasn’t done enough to budge top quality utility stocks from their still historically high valuations.

High prices alone never kill bull markets. But it’s all too easy to disappoint the lofty investor expectations they represent. And risk is never higher than when companies are reporting quarterly earnings and issuing guidance.

This month’s Utility Report Card highlights my analysis of results for the roughly two-thirds of our coverage universe that’s responded to date. The really good news is that so far Portfolio recommendations are sticking to calendar year 2019 guidance, even in cases where weather and non-recurring events have depressed quarterly bottom lines.

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ABOUT ROGER CONRAD

Roger S. Conrad needs no introduction to individual and professional investors, many of whom have profited from his decades of experience uncovering the best dividend-paying stocks for accumulating sustainable wealth. Roger b