Feature Article

Four years ago, Brookfield Renewable’s tax advantaged partnership units (TSX: BEP-U, NYSE: BEP) and C-Corp shares (TSX: BEPC, NYSE: BEPC) were trading at twice current levels. That’s despite growing profits 10 percent plus annually since, and paying a dividend now 23 percent higher. I expect both partnership units and C-Corp shares to double in the next 12 to 18 months.

Since Thanksgiving, shares of Edison International (NYSE: EIX) are down  more than -40 percent. The stock sells for just 8.8 times the mid-point of its 2025 earnings guidance range of $5.50 to $5.90 per share. And the dividend yield is nearly 7 percent, following last month’s 6.2 percent increase. The reason: Southern California’s devastating wildfires this year, and the possibility utility equipment was responsible for some damage and loss of life. Estimates run from $80 to $170 billion.

From Deepseek AI to federal government upheaval: There’s been no shortage of stock market-moving headlines since the January issue of Conrad’s Utility Investor posted. Utilities and essential services stocks aren’t known for volatility. But several have taken investors on wild rides over the last month.

XPLR Infrastructure (NYSE: XIFR), formerly known as NextEra Energy Partners, will not pay a dividend for the foreseeable future. That’s the chief result of the company’s strategic review announced in late January. I highlighted the rationale for the move in the January 28 Alert: “More Earnings, XPLR Infrastructure and Deepseek AI Fallout,” also posted on the Conrad’s Utility Investor website.

US-based utilities have always been the core of investment strategy at Conrad’s Utility Investor. More than one-third of the companies in the Utility Report Card coverage universe, however, are actually based outside the US. That includes seven Aggressive Holdings and four Conservative Holdings, one of which TC Energy (TSX: TRP, NYSE: TRP) is also a Top 10 DRIP. Two others—AES Corp (NYSE: AES) and Chevron Corp (NYSE: CVX)—are true multi-nationals.

Energy Information Administration data says 2024 US electricity demand growth nearly tripled the average yearly rate so far this century. And no energy resource contributed more than natural gas, at 43 percent and rising. National Fuel Gas (NYSE: NFG) is America’s sole fully “integrated” natural gas company, combining exploration and production (E&P) with midstream gathering and pipelines and utility distribution operations. It pays a steadily growing dividend, maintains an investment grade balance sheet and has upside leverage to natural gas prices.

Steady expansion “consistent with financial guardrails:” That’s been the formula for Pembina Pipeline (TSX: PPL, NYSE: PBA) the past two decades, as it’s become the largest Canada-focused midstream energy company. Guidance announced mid-December affirms the strategy is alive and well. Management expects 2025 EBITDA between CAD4.2 and CAD4.5 billion—with volume growth across the Western Canadian Sedimentary Basin, new assets entering service and increased ownership of the Alliance Pipeline and Aux Sable system offsetting lower priced re-contracting of the Cochin Pipeline and likely “moderation of commodity margins.”

For the Conrad’s Utility Investor model portfolios, 2024 was a very good year. The Conservative Portfolio with its focus on high income, safety and long-term capital appreciation posted a total return of 15.8 percent. The Top 10 DRIPs’ dividend reinvestment strategy delivered a compound gain of 28 percent. And the Aggressive Holdings’ higher risk/return focus fared best of all, with a 30.2 percent return.

Last year, seven companies in the Conrad’s Utility Investor coverage universe cut or eliminated their dividends. They were: Algonquin Power & Utilities (TSX: AQN, NYSE: AQN), Innergex Renewable Energy (TSX: INE, OTC: INGXF), SSE Plc (London: SSE, OTC: SSEZY), Superior Plus (TSX: SPB, OTC: SUUIF), Telephone and Data Systems (NYSE: TDS), Uniti Group (NSDQ: UNIT) and Vodafone Plc (London: VOD, NYSE: VOD).

When a stock surges or crashes, there’s always a reason. But barring a real change in business value, there’s always going to be a reversion to the mean: Laggards become the leaders and vice versa. It’s fair to say the artificial intelligence revolution was the key driver of returns for the top 15 performing stocks in the Conrad’s Utility Investor universe last year. Conversely, foreign currency weakness along with concerns about heavy debt and renewable energy’s future growth were the primary reasons for weakness of the bottom 10.