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Executive Summary

Falling Borrowing Costs = Rising Stock Prices

By Roger S. Conrad on Jan. 11, 2024

The Dow Jones Utility Average finished 2023 with a -5.2 percent loss including dividends. That’s the worst performance for utilities since 2008.

It’s a far cry from that year’s -27.8 percent pummeling. But the DJUA’s 31.3 percentage point underperformance of the S&P 500 is actually worse than 1999—when a similar combination of rising interest rates and soaring technology stocks soured many investors on dividends.

So in 2024, utility stocks have outperformed, as they have since early October. One big reason to expect more gains: A massive decline in companies’ borrowing costs that’s occurred well in advance of any Federal Reserve easing.

In late 2023, the Wall Street consensus was utilities were heading for a reckoning on capital spending plans that are critical to meeting earnings guidance. That didn’t happen then. And Armageddon is even less likely now.

This issue’s Utility Report Card presents point-by-point analysis of Quality Grades. And more than half the companies I track are now borrowing at lower rates than a year ago. Only three are paying more than three months ago, each because of challenges to their solvency. And 16 have already taken advantage of the improved environment to issue bonds, with more activity likely as the Fed pivots to cutting rates this year.

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