Feature Article

In July 2017, new Aggressive Holding Avista Corp (NYSE: AVA) accepted an all-cash takeover offer of $53 per share from Canadian utility Hydro One (TSX: H, OTC: HRNNF). Then followed basically a year and a half of futility. And the parties eventually broke off their deal in January 2019, when regulators in Idaho and Washington rejected it due to concerns about then Ontario premier Doug Ford. Avista shares overnight dropped from low-50s to the low-30s and have been attempting to fight their way back ever since. The primary hurdle: Investor concerns about regulation in Alaska, Idaho, Montana, Oregon and especially Washington (60 percent of rate base), where the needs of the utility’s eastern state franchise are a world away from coastal politicians.

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.

When you’re a long-term investor, momentum isn’t always going to flow your way. And when it’s against you—whatever the reason—it can be intensely frustrating, no matter how much in dividends you’re collecting. The greatest danger is it’s all too easy to conflate stock market weakness with a truly unraveling business. You may bail out prematurely from a company that’s only undergoing a temporary setback. Or alternatively, you might hold onto a stock that’s only just beginning its descent, as declining sales lead to dividend cuts and worse.

When a company cuts its dividend, its share price usually craters. The exception is if the reduction is part of a larger strategic move that makes sense. That’s the case for Aggressive Holding MDU Resources (NYSE: MDU), which reduced its quarterly dividend for payment in October by -43.8 percent to 12.5 cents per share.

In the 120 years plus since electricity, heating and water became essential services, not one regulated operating utility has ever gone out of business. That includes companies forced to declare bankruptcy, most recently California’s PG&E Corp (NYSE: PCG) The same can’t be said for communications. Since the Telecom Act of 1996 ended local phone monopolies, literally hundreds of companies have appeared only to vanish in a few years. And several in my Utility Report Card coverage universe are flirting with some form of debt restructuring now, including Altice USA (NYSE: ATUS), DISH Network Corp (NSDQ: DISH) and Lumen Technologies (NYSE: LUMN).

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.

Last year, Southwest Gas Holdings (NYSE: SWX) shares soared above $90, my “consider taking profits” price listed in the “Portfolio Holdings Trading Above Target” table. We would have done better selling it all.

It’s been mostly more of the same for investment markets this past month, just as has been the case for most of this year.

Thus far in 2023, seven Utility Report Card companies have announced lower dividends than they paid in 2022. None, however, have done so since March. And 97 have raised payouts at least once, with three-dozen more ready to follow their lead.

So far, 2023 has been a great year to own the biggest technology stocks—but little else. The Nasdaq 100 is up roughly 38 percent year-to-date. And the 7 stocks that dominate it have lifted the S&P 500 by 15 percent.