Revisiting our Picks and Pans for 2017

The Dow Jones Utility Average has generated a total return of 11.7 percent this year, outperforming the S&P 500 by 2 percentage points.

With the Dow Jones Utility average trading at more than 19 times earnings and yielding less than 3 percent, investors seeking differentiated returns need to focus on individual stories and avoid the large-cap names that dominate the index.

Although the likes of NextEra Energy (NYSE: NEE), Duke Energy Corp (NYSE: DUK) and Dominion Resources (NYSE: D) remain core holdings, investors should wait for these names to pull back below our value-based buy targets.

Our top pick in the sector, Algonquin Power & Utilities Corp (TSX: AQN, NYSE: AQN), has returned almost 24 percent, reflecting the improving regulatory outlook for its recently acquired utility assets in Missouri.

We have increased our buy target on Algonquin Power & Utilities to US$10 in light of these favorable developments, its ongoing investments in renewable energy and plans to grow its dividend at an annual rate of 10 percent in coming years.

Meanwhile, Hawaiian Electric Industries (NYSE: HE) has lagged the Dow Jones Utility Average’s performance by about 7 percentage points this year. The company faces a challenging business environment where regulators have demanded a quick transition to renewable energy but remain reluctant to increase rates to support the necessary investment. Regulatory challenges and the risk of a dividend cut make Hawaiian Electric Industries a Sell.