Conservative Income Feature

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.

In late January, NextEra Energy Partners (NYSE: NEP) management extended guidance for 12 to 15 percent dividend growth through calendar year 2026. That’s off a current yield of nearly 5.3 percent, implying an end of period payout on the current price of between 8.3 and 9.2 percent.

NextEra Energy (NYSE: NEE) was the first major mover in American renewable energy—forging relationships across the country with prospective customers, local governments and suppliers years ahead of the competition en route to building its current 65 gigawatt capacity operating portfolio. And the company is set to continue that dominance, coming off a record year of 8 GW of new contracts and 5 GW start ups despite supply chain challenges. The Florida Power & Light utility is developing what management calls a 160 GW solar, storage and hydrogen opportunity over the next 20 years. And unregulated NextEra Energy Resources has $71 billion total assets, 30 GW of generation and a backlog of signed contracts for 19 GW more.

Major infrastructure projects are vulnerable to big cost increases in inflationary times. So while disappointing, TC Energy’s (TSX: TRP, NYSE: TRP) announcement this month of a 30 percent increase in construction costs for its Coastal GasLink natural gas pipeline is hardly surprising.

Investors hate uncertainty. So it’s understandable that Dominion Energy (NYSE: D) shares sold off in early November, when the company replaced its CFO and announced a “top to bottom” strategic review. CEO Bob Blue stated the company would pursue “value-maximizing” actions, including “alternatives to our current business mix and capital allocation.” Dominion shares, however, now arguably price in the opposite: A cut in 6 percent annual earnings and dividend growth guidance to low single digits or worse.

Being the first mover in a new technology means taking risks later adopters don’t. And Conservative Holding Southern Company (NYSE: SO) felt the pain of a $6 billion write off when its once-promising clean coal project in Mississippi failed in the previous decade.