Conservative Income Feature

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.

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.

Adding water and wastewater customers by acquiring cash-poor systems on the cheap, then upgrading systems under reliable rate plans: That’s been the formula for Essential Utilities’ (NYSE: WTRG) reliable 7 to 10 percent annual earnings and dividend growth since the early 1990s, when it was known as Philadelphia Suburban.

Rarely have shares of a high quality essential services company like Verizon Communications (NYSE: VZ) been treated so poorly by investors. In the July 18 Utility Roundup “Verizon and AT&T: Some Thoughts,” I highlighted two catalysts for downside this summer: Fear that Amazon.com would offer wireless service through its Prime brand and a Wall Street Journal investigative piece alleging telecoms have potential liabilities in the tens of billions of dollars from owning toxic lead-lined cable.

Not once since its November 1999 IPO has Brookfield Renewable Partners (TSX: BEP-U, NYSE: BEP) ever cut its dividend. Nor has the company missed an annual increase since 2009—when the rate was held flat following Canada’s death sentence for income trusts.

California’s wildfires are getting worse. The state’s electric power grid, however, is systematically becoming more resilient. From 2019-2022, for example, cumulative structures destroyed by wildfires linked to Edison International’s (NYSE: EIX) southern California system were 96 percent less than in the 2017-18 period. And as a result, the company’s post-2018 wildfire liabilities not covered by insurance have been immaterial, versus $8.8 billion incurred in 2017-18.

Back in 2003, Conservative Holding Duke Energy (NYSE: DUK) was a sprawling utility conglomerate. Its global portfolio of assets included real estate management, an Ecuadorian wireless phone and Australian natural gas pipelines. That’s when management began a long transition back to its regulated electric utility roots, selling assets, paring debt and investing in rate base. And later this year, Duke will finish the journey by selling its commercial renewable energy business, turning the company’s focus squarely on its $145 billion, 10-year utility CAPEX plans.