Feature Article

Last month, I highlighted five key drivers of the Dow Jones Utility Average’s early 2022 rally past the long-elusive 1,000 mark. Unfortunately, over the past month of so two major negatives have put a lid on upside. One is inflation pressure that’s up-ended the broad stock market, while accelerating the bond market’s decline.

Even before the Commerce Department launched its probe of imports from Southeast Asia, the cost of solar panel costs was as much as 50 percent higher in the US than Europe and Australia. And Solar Energy Industries Association members have cut 2022-23 installation forecasts by 46 percent, on the prospect of new retroactive tariffs as high as 250 percent.

Centerpoint Energy (NYSE: CNP) has been a big winner since we entered its convertible preferred stock in mid-2020, following a 48 percent cut in the common dividend. Now with shares trading at a premium valuation of 22 times expected next 12 months earnings, it’s fair to ask how much more upside we can realistically expect.

The yield for 10-year Treasury bonds is now over 3.1 percent, more than double where it began 2022. And the US Federal Reserve has decisively moved to tighten monetary policy with a 50 basis point increase to its key Fed Funds rate. Yet the Dow Jones Utility Average is still very much in the black year to date.

In the December 2021 feature article, I noted the S&P Telecoms Index traded at a bear market valuation 9.4 times earnings, excluding a handful of technology names like Alphabet Inc (NSDQ: GOOGL). If anything, investors’ gloomy consensus on the sector has thickened since, with every communications company but one in our coverage universe losing more ground.

Utilities were the last major sector to make a post-pandemic high. But in late March, the Dow Jones Utility Average smashed through the once unassailable 1,000 level and hasn’t looked back yet.

Chinese power producer Huaneng Power International (HK: 902, NYSE: HNP) did not declare a dividend for fiscal year 2021. That means investors will likely have to wait until calendar 2023 for a cash payout.

First off, let’s dispense once and for all with the fallacy that rising interest rates are always a bad thing for dividend paying stocks.

A big increase in borrowing costs can certainly derail earnings and dividends of highly leveraged companies. And the Federal Energy Regulatory Commission recently cut PG&E Corp’s (NYSE: PCG) allowed return on equity for transmission to 9.26 percent, meaning there’s no guarantee regulators will allow returns to keep pace with rising interest rates.

Russia’s invasion of Ukraine and the unexpectedly severe global reaction to it have understandably triggered mass selling of any company with perceived exposure. Among the damaged is Aggressive Holding Enel SpA (Italy: ENEL, OTC: ENLAY).