Feature Article

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.

Last August, I harvested a basket of high yielding stocks from what I called “stony ground.” My point was falling interest rates had become a double-edged sword for income investors. On the one hand, returns for dividend paying stocks and fixed income securities were rising. And companies’ generation-low borrowing costs were firing up earnings as well.

Communications traffic is surging while the global economy shrinks. By and large, sector companies didn’t convert that to higher profits or even revenues in Q1. But the emerging trend is faster adoption of 5G, with a resulting earnings liftoff for industry leaders the next few years.

The customer is always right regardless of what business you’re in. And for regulated energy utilities like Dominion Energy (NYSE: D) now, that means using more wind and solar to generate electricity.

Most CUI Portfolio stocks have run in place since the April issue. But the past month has been far from uneventful, with 34 of 38 recommended companies reporting their first results and guidance updates since COVID-19 fallout hit the scene.