The Dow Jones Utility Average hit an all-time high in late June, backed off and is rallying again. The price-weighted index now sells for nearly 22 times trailing 12-months earnings and yields barely 3 percent.
The last time utilities yielded this little was just before the 2007-09 bear market. The only time since the early 1960s the P/E was this high was at the end of 2000, before a nearly 60 percent crash in the wake of Enron’s collapse.
Utility sector business fundamentals have rarely if ever been more secure. That’s the clear message from the break down of my five-part Quality Grade system, which I present in the Utility Report Card. The latest shot in the arm is a steep drop in essential service companies’ borrowing costs.
Almost 20 years ago, dysfunctional rules for California’s unregulated power market drove the state’s two biggest electric utilities into bankruptcy and impacted the entire sector. This year, the "inverse condemnation" rule has triggered one bankruptcy filing and may push the state's other electric utilities' ratings toward junk.
Get big or go home: The "Big Four" will likely soon become the "Big Three."
First quarter results are in for US Telecom’s Big Two. The most important takeaway by far: Both companies remain on track with financial results, long-term strategy and building long-term shareholder value.
While much of the rebound in our CUI Conservative Income Portfolio and bond holdings has been due to reduced economic fears, the fact these companies have demonstrated strength in operating results has no doubt helped prices recover over the past four months.
Get big or go home: That’s the communications sector’s reality.
Xcel Energy’s (NYSE: XEL) electric utility territory stretches from Minnesota to Texas, running through high-growth Colorado. And with nearly $12 billion in annual revenue and $31 billion market capitalization, its strategic moves are always significant. But getting there depends on more wind power deployment. For that, Xcel will rely on NextEra Energy (NYSE: NEE), its biggest supplier and the leading US producer of wind and solar.
Aqua America (NYSE: WTR) is closing in on its proposed acquisition of Pennsylvania-based Peoples Gas, positioning the companies' merger for a late third-quarter close.
Greens and other environment-first advocates have emerged as a powerful bloc in European parliamentary elections, garnering a heavy influence on the ruling Centrist parties which will impact Europe's energy policies and providers.
Trade wars are wealth destroyers. The longer these disputes continue and the more actions governments take, the greater the danger of severe damage to the economy and stock market. There are, however, a handful of companies in position to actually win from this worst case.
Fair value is always in the eye of the beholder. But energy investors are best advised to follow our one simple rule for picking takeover targets: Only buy companies with the strength to thrive on their own.
Roger's favorite utilities for investors seeking superior price appreciation by taking calculated risks.
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Warning: Falling Dividends.
Roger's current take and vital statistics on more than 200 essential-services stocks.