Feature Article

Conrad’s Utility Investor has three model Portfolios. Our Conservative Holdings focus on best in class companies on target for consistent, reliable and robust earnings and dividend growth, with the idea that investors will harvest rather than reinvest dividends. Our Aggressive Holdings also generally assume a buy and hold approach, including harvesting dividends.

When a stock or sector trades at a meaningfully discounted valuation to market averages, there’s always a reason why. Sometimes there’s an opportunity for investors to cash in from closing that discount, if the reason proves temporary. And sometimes, the valuation gap persists or even widens, if the challenge behind it becomes more acute.

Worries about rising interest rates and inflation pressures have emerged as material headwinds for dividend paying stocks. As a result, the Dow Jones Utility Average has once again failed to break above long-standing upside resistance at its February 2020 all-time high. That makes it 19 months and counting since the DJUA has reached a new peak. And it’s a stark contrast to the S&P 500, which hit one just last month.

AT&T Inc (NYSE: T) still sells for less than 8.7 times expected 2021 earnings. And PPL Corp (NYSE: PPL) yields 2.5 percentage points more than the Dow Jones Utility Average. Why the deep discounts? Because neither company’s management has come clean on how much they intend to cut dividends after completing major transactions early next year, other than to say they intend to “right size.”

According to the US Energy Information Administration’s baseline forecast, Americans will use 40 percent more electricity by 2050 than in 2010. And more than half of that will come from new wind and solar, driven by the combination of favorable government policies, continued declines in the cost curve and development of energy storage.

This summer, the Biden Administration upped the ante even more with a proposal to build 1,000 gigawatts of solar generating capacity in the US by 2035 at a projected cost of roughly $1 trillion. That follows its acceleration of permitting for US offshore wind projects as well, which the government hopes will result in 26 GW of capacity entering service by 2030.

Last week, Centerpoint Energy’s (NYSE: CNP) 7 percent preferred stock converted into 1.8349 of the company’s common shares. That was the maximum possible exchange and the best outcome for the preferred, which also paid a final dividend of 87.5 cents.