Conservative Income Feature

Conservative Holding Entergy Corp (NYSE: ETR) has been a fully regulated utility for more than two years—divesting its Palisades nuclear plant in Michigan in June 2022 to Holtec International. The result is reduced business risk, a stronger balance sheet and exclusive management focus on growing regulated rate base in the utility’s four-state territory. Annual industrial load growth is the strongest in America averaging 8-9 percent annually. And it’s likely to accelerate the next few years, spurred by “onshoring” to the US Gulf Coast, electrification, artificial intelligence-enhanced data centers (5-10 gigawatts demand projected) and rapid growth of LNG export infrastructure.

Conservative Holding Exelon Corp (NYSE: EXC) spun out its unregulated nuclear power operations to shareholders as Constellation Energy (NYSE: CEG) in early 2022. And it’s fair to say no one—including me—anticipated the stock would rise nearly 400 percent since. Neither did I think the remaining six-state regulated utility would return basically zero. And despite boosting dividends 13 percent since the spin, Exelon shares trade at just 14.6 times expected next 12 months earnings, versus 16.6 for the Dow Jones Utility Average.

In late April, Georgia Power’s unit 4 of the Vogtle nuclear plant entered full commercial service—joining Unit 3, which has been operating smoothly since last July. And with customer rates to pay for the facility fully in place, the book is now finally closed on a construction project that began in August 2008 and ultimately cost $30 billion, versus initial estimates of $14 billion. During Southern’s Q1 earnings and guidance call earlier this month, CEO Chris Womack stated unequivocally his view that the US “is going to need more nuclear.” But he also said “we’re going to celebrate what we’ve done at Vogtle for a very long time before we give any consideration” to launching another project.

Utility strong is what you get with Conservative Holding CMS Energy (NYSE: CMS). The stock’s 10-year compound annual return is a solid 10.5 percent. And it’s 15.4 percent for the last 21 years—which began with a management switch and refocus on boosting efficiency, cutting debt and staying on the same page with Michigan regulators. That’s been the formula for success ever since. In early February, CMS released 2023 results that topped the company’s recently raised targets. Management boosted the mid-point of the 2024 earnings guidance range to $3.32 per share, affirming expected annual growth of 6 to 8 percent through 2028 “with continued confidence toward the high end of the range. The company also raised dividends by 5.7 percent, the same rate of growth as in 2023 and an increase of 90.7 percent from ten years ago.

Conservative Holding Sempra Energy (NYSE: SRE) last month raised its five-year capital-spending plan by 20 percent to $48 billion. One big reason we can be confident management will turn that into robust earnings growth: 90 percent is targeted for already regulator-approved utility system investment in California and Texas. The rest will finance a portfolio of high return, pre-contracted LNG and renewable energy projects in the southwest US and Mexico. California’s drive to simultaneously electrify everything and stanch the danger of wildfires is spurring an earnings-lifting CAPEX bonanza for its utilities. That includes natural gas, as the realization energy transitions take time convinced regulators to authorize a 50 percent capacity boost at Sempra’s Aliso Canyon storage facility—which some wanted to close not long ago. And state law linking utility returns to interest rates has seen returns on equity surge to over 10 percent this year.

For Conservative Holding Brookfield Renewable (TSX: BEP-U/BEPC, NYSE: BEP/BEPC), last year was the best for business yet. Funds from operations per unit increased 7.1 percent, supporting a 5.2 percent dividend increase—which could have been meaningfully higher had management not elected to accelerate investment. Brookfield added a record 5 gigawatts of renewable energy projects to its backlog during the year, well ahead of the previous year’s 3.5 GW. That boosted its “advanced stage” development platform to 24 GW. And 90 percent of the new contracts are with corporate customers, much tied to data centers seeing accelerating electricity demand from artificial intelligence.

It’s fair to say Conservative Holding TC Energy (TSX: TRP, NYSE: TRP) faced a mountain of skepticism from investors last year. That started with significant cost overruns announced at the Coastal GasLink pipeline in late 2022. Many doubted the company would ever finish the project, or execute on funding the additional costs with CAD5 billion of asset sales. And even more have dismissed the planned spinoff of oil pipeline assets as caving into ESG pressures.

For most of the 9-plus years it’s been a Conservative Holding, WEC Group (NYSE: WEC) has been tough to buy at a good price. That’s not the case now with the stock yielding nearly 4 percent, and the upper Midwest utility on track for a 7 percent dividend boost later this week. Much of WEC’s weakness this year is due to generalized utility sector selling. But the company has also seen its historic premium valuations compressed a bit: The forward earnings multiple of 18.5 times is the lowest in more than 8 years, and the stock’s yield is approaching a 20-year high—when the dividend was roughly one-eighth of what it is now.

About a year ago, Dominion Energy (NYSE: D) announced a “top-to-bottom” strategic review. Management’s objective: To tackle three headwinds that were rapidly approaching hurricane force. Most important was ensuring the cost of the Coastal Virginia Offshore Wind (CVOW) project wouldn’t balloon as other US offshore wind has. But the utility also had to reach an accommodation with a restive new Republican majority in the state legislature that was determined to roll back Democrats’ signature renewable energy law. And it had to cut parent level and floating rate debt with interest rates soaring.

Earlier this month, Duke Energy (NYSE: DUK0 closed the sale of its commercial distributed generation unit to a private capital consortium for $364 million. And later this year, it will complete the sale of its utility scale renewable energy unit to Brookfield Renewable Partners (NYSE: BEP, BEPC) for $2.8 billion.