Feature Article

Oil prices have stabilized around $40 a barrel the past two months. And a hotter than anticipated summer has pushed North American benchmark natural gas to more than $2 per million British Thermal Units.

Many analysts exclusively use big data to discover major economic and stock market trends. My problem with that is if you’re always 30,000 feet up, you’ll miss a lot of what’s happening on the ground. Utilities and essential services companies touch literally every corner of the economy. Consequently, talking a walk through their results every quarter is a great way to discern big picture trends from the ground up.

No Dow Jones Utility Average member has seen volatility this year like AES Corp (NYSE: AES). The stock hit a 12-year peak on February 18, then fell more than 60 percent, and has since recouped two-thirds of that loss.

Electric utilities measure life of key assets in decades, rather than months or years. Success not only requires making the right call on what in invest in, but being flexible enough to shift course when circumstances change.

Duke Energy (NYSE: DUK) has demonstrated both this month, shelving its Atlantic Coast Pipeline project with Dominion Energy (NYSE: D). The company’s natural gas power plants will be in business for a while, enabling retirement of 6.5 gigawatts of coal capacity since 2010. The utility plans to retire 900 megawatts more by 2025, while shortening lives of 7.7 GW in North Carolina and Indiana.

Q2 earnings reporting season is coming up fast. And while no one is projecting blockbuster gains, certain baseline expectations must be met, and preferably beaten. Regulated utilities with posted earnings guidance offer the easiest benchmarks for gauging progress. Those updating in the past month offer the best odds of avoiding nasty surprises, always key to dodging downside.

Three Utility Report Card coverage universe companies cut dividends since the June issue of CUI posted. What makes them unique is all of them rate buys, as holding in cash now is sowing the seeds for rich returns over the next 12 to 18 months.

This spring Centerpoint Energy (NYSE: CNP) cut its quarterly dividend in half. That followed a $155 million reduction in distributions from Enable Midstream Partners (NYSE: ENBL), of which the company owns 50 percent of the general partner and 53.7 percent of common units.

Conservative Holding Sempra Energy (NYSE: SRE) has traded as high as $162 and as low as $88 this year. That volatility contrasts sharply with the steady business performance of the diversified utility and midstream energy company, including the robust 8 percent dividend boost this spring.

Stocks’ recovery since late March looks a lot more like a “V” than it did a month ago. And after breaking through resistance this month, the S&P 500 is now just 6.3 percent from making a new all-time high.

Utility stocks have also perked up lately. As a group, they’ve lagged since mid-April. Nonetheless, we’ve seen some spectacular recoveries among Portfolio holdings.

May set records for S&P 500 dividend cuts, with 18 companies suspending and 5 others reducing. They were joined by 3 non-US essential services providers from our Utility Report Card coverage universe.

AusNet Services (ASX: AST, OTC: SAUNF) raised its semi-annual dividend for payment in June by 4.9 percent. But the Australian electricity distribution utility also issued guidance for a payout cut of -7 to -12 percent for the next 12 months.