Portfolio Article

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.

Last week, the Dow Jones Utility Average hit a new high for 2021. But unlike most market sectors, utilities as a group still can’t seem to get over the hump of making a new all-time high. And as this issue of CUI goes to post, the DJUA is still roughly 2 percent below where it crested in mid-February 2020.

Since the July issue went to post, the Dow Jones Utility Average has generally trended higher. The result is the half-year return of less than 3 percent has grown to over 9 percent. One key reason: Solid Q2 results and strong guidance updates issued by the average’s 15 members. That includes this month’s Aggressive Focus stock AES Corp (NYSE: AES).

The Aggressive Holdings returned an average of 7.95 percent in the first half of the 2021. Conservative Holdings came in at 5.28 percent, while Top 10 DRIPs did the best at 12.34 percent. The average return for all 41 stocks across the portfolios was 8.1 percent.

Sometimes the investing strategy that makes the most sense is just to sit with what you have. That’s pretty much where I see things now with calendar Q1 results all-in for CUI portfolio recommendations. Last issue, I highlighted three encouraging big picture takeaways from the numbers and guidance updates so far. They were the fact that almost all coverage universe companies met or beat previous management guidance, key utility growth themes continue to gain strength and conservative is still cool when shaping sector operating and financial strategies. Those three trends were equally strong in the results from companies reporting the past few weeks. Of the portfolio recommendations, Conservative Holding Duke Energy (NYSE: DUK) increased Q1 earnings by 10.5 percent, affirmed its guidance mid-point of $5.15 per share for 2021 and repeated its target 5 to 7 percent annual growth rate.

Publicly traded companies today must constantly navigate their way through a thicket of financial reporting regulations and litigation risk. So it’s no wonder most take their time releasing fiscal year results, filings and guidance. In stark contrast are calendar Q1 results.

Perceived value always sets the price for stocks. And anyone who’s invested a while knows that can shift on a dime, as leaders and laggards trade places. Quality doesn’t change so quickly. That’s the health and growth of companies’ underlying businesses.

“Strong businesses are best but watch the price.’ That was the main theme of the February issue of CUI. And our advice to cash out of “the Teslas of the world” proved on the mark.

We start this month’s Portfolio strategy discussion with the three cornerstones of our investment strategy: 1) Sell stocks of companies that are weakening as businesses, 2) Build a pile of cash by unloading weakening companies and also taking partial profits on favorites that have run to unsustainable valuations, 3) Build a watch list of high quality companies to buy when they hit designated entry points.

Conservative Holdings up 2.6 percent, Aggressive Holdings ahead by 12.8 percent, Top 10 DRIPS a -12 percent loss. Those are the CUI Portfolio returns for 2020. By comparison, the Dow Jones Utility Average gained 1.5 percent, also including dividends paid. And the popular Utilities Select Sector SPDR ETF (NYSE: XLU) was up 0.07 percent.