Feature Article

For Conservative Holding Brookfield Renewable (TSX: BEP-U/BEPC, NYSE: BEP/BEPC), last year was the best for business yet. Funds from operations per unit increased 7.1 percent, supporting a 5.2 percent dividend increase—which could have been meaningfully higher had management not elected to accelerate investment. Brookfield added a record 5 gigawatts of renewable energy projects to its backlog during the year, well ahead of the previous year’s 3.5 GW. That boosted its “advanced stage” development platform to 24 GW. And 90 percent of the new contracts are with corporate customers, much tied to data centers seeing accelerating electricity demand from artificial intelligence.

Aggressive Holding Avangrid Inc (NYSE: AGR) rang in the New Year with two major announcements: The company terminated a merger agreement with New Mexico utility PNM Resources (NYSE: PNM) that dated back to October 2020. And first electricity flowed to the New England power grid from 800-megawatt capacity Vineyard 1, the first commercial scale offshore wind facility in the US. Avangrid also affirmed its 2023 earnings per share guidance range of $2.20 to $2.35. But investor skepticism runs deep the combination utility/contract power producer will maintain long-term earnings growth guidance of 6 to 7 percent, demonstrated by the stock’s current price of just 10.9 times expected next 12 months earnings.

Dividend increases—even big ones—don’t necessarily move stock prices. That much is clear from the mostly lackluster year-to-date performance of the 24 Utility Report Card companies raising dividends so far in 2024. Over time, however, prices of dividend paying stocks will follow payouts higher. And in the meantime, there are few more reliable outward signs of a company’s inner grace—that is, that the underlying business is still solid and the underlying value proposition of the stock is intact.

So far in 2024, some two-dozen Utility Report Card coverage universe companies have raised dividends. And as this month’s comments indicate, that number could well treble over the next month, as more release Q4 numbers and update guidance. In contrast just one company, Orsted A/S (Denmark: ORSTED, OTC: DNNGY), has announced a dividend cut so far this year. The company wasn’t on the Endangered Dividends List. But neither was the move a real surprise and it was clearly strategic, demonstrated by the stock’s stable performance since last week’s announcement.

From Asimov’s benevolent immortal robots to the hellscape of “The Terminator,” artificial intelligence has been the stuff of popular imagination since the early 20^th century. Now, the advent of “generative AI” is reshaping reality, with profound consequences for industries across the board. The basic idea is that computer systems can be “trained” on data to perform tasks that have historically required human intelligence. And depending on who you talk to, the possibilities are literally limitless, including outright replacement of human workers in professions now considered outside the purview of automation such as the arts.

Last year’s big drop in shares of NextEra Energy Partners (NYSE: NEP) and parent NextEra Energy (NYSE: NEE) was sudden and staggering. Ironically, their recovery should be just as breathtaking. In the October 5 Income Insights “Regarding NextEra,” I stated the case for a comeback. And since then, the parent has returned nearly 30 percent, while Partners has gained almost 50 percent. Here’s why I think that’s just the beginning.

It’s fair to say Conservative Holding TC Energy (TSX: TRP, NYSE: TRP) faced a mountain of skepticism from investors last year. That started with significant cost overruns announced at the Coastal GasLink pipeline in late 2022. Many doubted the company would ever finish the project, or execute on funding the additional costs with CAD5 billion of asset sales. And even more have dismissed the planned spinoff of oil pipeline assets as caving into ESG pressures.

Calendar year 2023 is in the books. Our Aggressive Holdings managed a 9 percent average return. Conservative Holdings dropped -2.6 percent and the Top 10 DRIPs lost -1.9 percent. Those returns compare to a -5.2 percent decline in the Dow Jones Utility Average. Other indexes relevant to portfolio holdings include the Alerian MLP Index (up 25.4 percent), iShares Select Dividend ETF (up 1 percent), the Nasdaq Clean Energy Index (-9.8 percent) the S&P Energy Index (-1.4 percent) and the S&P Telecom Services Index (up 2.7 percent).

Six companies in the Utility Report Card coverage universe cut dividends in 2023. That’s been about the average count for most years since the mid-1980s, when I began tracking utilities and essential services stocks. But having so few last year was quite a demonstration of sector resilience.

Cutting debt, strategic M&A and regulatory breakthroughs were “in” last year. High levels of debt and renewable energy were “out.” That’s the verdict of my annual roundup of utility and essential services company returns, highlighted in this month’s Utility Report Card. Divergence between individual companies in 2023 was roughly the same as in 2022, with 216.2 percentage points separating the top and bottom of my table “Best and Worst of 2023” versus 206.6 a year ago. And thanks to a pair of massive sector out-performances, my 2023 picks narrowly edged the pans—with both groups topping the Dow Jones Utility Average by more than 20 percentage points.