With interest rates on the rise, utilities investors aren't likely to enjoy the valuation uplifts that they've seen over the past few years. Instead, to get their cash total returns, investors are going to have to rely on the yields in the market right now and the growth of those dividends. In the utilities sector, we think there are two trends that can support that growth, and the yields right now are still attractive in the market.
One trend, we think will support the growth is renewable energy. We think renewable energy could grow 40% over the next eight years, and two names in particular we think will benefit are NextEra Energy and Xcel Energy. Both are building capacity for renewable energy and the infrastructure to deliver that renewable energy to large load centers.
The second trend we think will support dividend growth is more federal support for infrastructure investment. President Donald Trump is going to appoint three of the five commissioners at the Federal Energy Regulatory Commission. We expect those appointees and the commission on a whole to be more supportive of electric transmission development, gas pipelines, and competitive markets. This advantages the large-cap utilities in the U.S., in particular, Southern Company, Duke Energy, and Dominion Resources. All three have large balance sheets, trade about fair value right now, and offer growth in the dividends above 5%.
MorningStar
Read more:
25 Canada Square, Level 33, office 50, Canary Wharf London, E14 5LQ +44 20 3608 6256
World Financial Markets - 0700 17 600 Varchev Exchange - 0700 115 44
Varchev Finance Ltd is registered in the FCA (FINANCIAL CONDUCT AUTHORITY) with a passport in the United Kingdom: FCA, United Kingdom - registration number: 494 045, which allows provision of financial services in the United Kingdom.
Varchev Finance Ltd strictly comply with the statutes of the European directive MiFID (Markets in Financial Instruments). targeting increased efficiency, transparency and uniformity of financial instruments.
Varchev Finance Ltd is authorized and regulated by the Financial Supervision Commission - Sofia, Bulgaria: License number RG-03-02-05 / 15.03.2006
The information on this site is not intended for distribution or use by any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.
Disclaimer:
CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 63,41% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work, and whether you can afford to take the high risk of losing your money.