Investing Topics: Electric Utilities

With the US and global economies softening and credit markets tightening, a company’s relative cost of capital can determine whether it’s a winner or a loser.

For the 39th time since 1969, the Dow Jones Utilities Average rallied in the fourth quarter. But this upside didn’t prevent the benchmark from finishing the year with a 3.1 percent loss, the index’s first negative return after a positive January since 1987. Fortunately, the primary catalyst for the loss—uncertainty about when the Federal Reserve would start raising interest rates—no longer exists. And just like the beginning of the 2004-06 tightening cycle, utility stocks have gained ground despite weakness in the broader market. But last year’s challenges remain in play for 2016. Energy prices have yet to find a bottom. Non-investment grade debt has become crushingly expensive to refinance, tightening capital markets for all but the strongest companies. Emerging markets continue to struggle. And any international currency not pegged to the US dollar find itself under pressure. The Quality Grades for the 214 essential-service companies tracked in our Utility Report Card provide insight into the spectrum of risk and help investors to avoid the riskiest names.

Our proprietary quality grades help investors to assess the spectrum of risk across the more than 200 essential-service companies covered in our Utility Report Card.

We highlight some of the key investment themes that stood out after three days of presentations and talking to management teams at the Edison Electric Institute's annual financial conference.

After the first day of presentations and meetings at the Edison Electric Conference's 50th Annual Financial Conference, one theme stands out: increasing adoption of solar power doesn't sound the death knell for regulated electric utilities. In fact, this would-be disruptor creates a huge growth opportunity for incumbent power producers.

Having confidence in your holdings’ underlying businesses makes it easier to endure a volatile market without losing too much sleep.

This company is poised for growth after divesting a money-losing business.

How comfortable would you be holding your stocks in a bear market? With the bull market show its age—including consistently bad breadth—this question has taken on new urgency as the year winds down.

Shares of best-in-class utilities rarely sell for bargain prices, which is why we've taken advantage of recent weakness to snap up this stock for our Conservative Income Portfolio.

In this new YouTube video series “#AskRoger Utilities & Income,” Roger Conrad answers readers’ questions about utilities, income investing, dividends and more! If your question wasn’t answered this time, submit your comments on Twitter using the hashtag #AskRoger.