Lower Expectations to Bring Better 2019 Results

A year ago, I highlighted “lofty expectations” as the primary danger to the Conrad’s Utility Investor coverage universe. That risk is no longer so acute after a year of generally robust earnings and sliding share prices.

Rather, the key question is whether companies can maintain profit and dividend growth momentum, should the macro environment darken in 2019 as so many fear. And certainly there are plenty of causes for concern on that front, ranging from trade tariffs and potential fallout from a record-long US government shutdown to still-tightening monetary policy.

This month’s Utility Report Card highlights how all 200-plus companies we track stack up on the five criteria behind our Quality Grades: Dividend growth sustainability, revenue reliability, regulatory relations, refinancing/financing ability and operating efficiency.

As the 2018 returns shown in the comments also demonstrate, even A-rated companies meeting all five can see red ink in a given year. But being strong on the inside is the best forecaster for an eventual recovery. And it’s also the most effective protection for investors if the economy and stock market resume their vicious pre-Christmas holiday slide.

This is also the time of year when we publish our sector-by-sector forecast, along with picks and pans for each in the coming year. Last year’s favored stocks once again beat the bad and ugly, though almost everything followed the overall market underwater.

I expect a much better result this year, in large part because investor expectations are far lower across the board for essential services companies.