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Feature Article

Sempra Energy: Serving 2 Great States Plus LNG

By Roger S. Conrad on Mar. 11, 2024
Conservative Holding Sempra Energy (NYSE: SRE) last month raised its five-year capital-spending plan by 20 percent to $48 billion. One big reason we can be confident management will turn that into robust earnings growth: 90 percent is targeted for already regulator-approved utility system investment in California and Texas. The rest will finance a portfolio of high return, pre-contracted LNG and renewable energy projects in the southwest US and Mexico. California’s drive to simultaneously electrify everything and stanch the danger of wildfires is spurring an earnings-lifting CAPEX bonanza for its utilities. That includes natural gas, as the realization energy transitions take time convinced regulators to authorize a 50 percent capacity boost at Sempra’s Aliso Canyon storage facility—which some wanted to close not long ago. And state law linking utility returns to interest rates has seen returns on equity surge to over 10 percent this year.

Algonquin: Gaining Strength as Big Moves Near

By Roger S. Conrad on Mar. 11, 2024

It’s fair to say that Algonquin Power & Utilities (TSX: AQN, NYSE: AQN) has been a problematic recommendation the past few years. Aggressive expansion boosted profits for years, then suddenly hit a brick wall of rising borrowing costs. And Kentucky regulators broke up the acquisition of American Electric Power’s (NYSE: AEP) operations in that state. But after boosting Q4 earnings and EBITDA by 14 and 13 percent, respectively, Algonquin’s core business is strengthening again. And the long awaited sale of non-utility assets may happen as soon as mid-year—lifting the long-lagging share price with massive debt reduction and stock buybacks. Operating profit at Algonquin’s regulated utilities in 2023 increased by 10.5 percent, thanks largely to rate increases paying for system investments. That will be the major driver of growth in 2024 and beyond, along with systematic cost management. During the earnings call, management highlighted $105.8 million pending rate increase requests to be decided this year.

Business Performance is Everything

By Roger S. Conrad on Mar. 11, 2024

Last month, I highlighted three key takeaways, drawn from the Q4 results and guidance updates of Utility Report Card members I’d seen so far. They were: Number one, results and guidance demonstrated very healthy and growing business. Recommended companies met my chief criterion for continuing to own them, as well as add to current positions when appropriate. Second, every company affirmed its guidance for earnings growth as well as capital spending plans fueling it. And more than a few actually raised long-term investment targets.

Innergex Surprises: But Building a Financial Cushion Makes Sense

By Roger S. Conrad on Mar. 11, 2024

Dominion Energy (NYSE: D) will drive down its payout ratio by holding dividends level the next few years. And other companies will do the same by sharply reducing the size of increases—and holding in more cash to self-fund growth. So far in 2024, however, just two companies have announced dividend cuts versus several dozen increases. The first was Orsted A/S (Denmark: ORSTED, OTC: DNNGY), a widely expected move brought on by vast cost overruns from building offshore wind projects. Since then, however, Orsted received a much needed shot in the arm, as its Sunrise Wind project won a new contract with New York state. The stock’s a buy up to 25 for patient, aggressive investors who don’t need the income.

Utilities and Wildfires: Danger But Also Opportunity

By Roger S. Conrad on Mar. 11, 2024

Last year, 56,580 wildfires burned roughly 2.7 million acres in the US, according to the National Interagency Fire Center. That was actually the lowest total in the 24 years since the Center has been keeping track. It compares to a 2001-2020 average of nearly 7 million acres destroyed and nearly 10.3 million in 2020, the worst year on record. Nonetheless, wildfires in 2023 still caused billions of dollars and claimed lives. And numerous studies indicate vast areas of North America have developed a deadly combination of increasingly arid conditions and extended human settlement, putting them at elevated risk to extended and intense blazes. Few if any industries are as potentially exposed as electric utilities. Not only are wildfires capable of doing enormous damage to systems, interrupting sales and requiring massive repairs and remediation. But when damaged, live high and low voltage power wires become ready sources of ignition themselves, worsening ongoing blazes and in some cases starting them.

Brookfield Renewable: Scaling Up for Faster Growth

By Roger S. Conrad on Feb. 12, 2024

For Conservative Holding Brookfield Renewable (TSX: BEP-U/BEPC, NYSE: BEP/BEPC), last year was the best for business yet. Funds from operations per unit increased 7.1 percent, supporting a 5.2 percent dividend increase—which could have been meaningfully higher had management not elected to accelerate investment. Brookfield added a record 5 gigawatts of renewable energy projects to its backlog during the year, well ahead of the previous year’s 3.5 GW. That boosted its “advanced stage” development platform to 24 GW. And 90 percent of the new contracts are with corporate customers, much tied to data centers seeing accelerating electricity demand from artificial intelligence.

Avangrid Inc: No PNM But Opportunity Abounds

By Roger S. Conrad on Feb. 12, 2024

Aggressive Holding Avangrid Inc (NYSE: AGR) rang in the New Year with two major announcements: The company terminated a merger agreement with New Mexico utility PNM Resources (NYSE: PNM) that dated back to October 2020. And first electricity flowed to the New England power grid from 800-megawatt capacity Vineyard 1, the first commercial scale offshore wind facility in the US. Avangrid also affirmed its 2023 earnings per share guidance range of $2.20 to $2.35. But investor skepticism runs deep the combination utility/contract power producer will maintain long-term earnings growth guidance of 6 to 7 percent, demonstrated by the stock’s current price of just 10.9 times expected next 12 months earnings.

Strong Earnings Portend Big Gains for the Patient

By Roger S. Conrad on Feb. 12, 2024

Dividend increases—even big ones—don’t necessarily move stock prices. That much is clear from the mostly lackluster year-to-date performance of the 24 Utility Report Card companies raising dividends so far in 2024. Over time, however, prices of dividend paying stocks will follow payouts higher. And in the meantime, there are few more reliable outward signs of a company’s inner grace—that is, that the underlying business is still solid and the underlying value proposition of the stock is intact.

One Off-List Cut But No Surprises

By Roger S. Conrad on Feb. 12, 2024

So far in 2024, some two-dozen Utility Report Card coverage universe companies have raised dividends. And as this month’s comments indicate, that number could well treble over the next month, as more release Q4 numbers and update guidance. In contrast just one company, Orsted A/S (Denmark: ORSTED, OTC: DNNGY), has announced a dividend cut so far this year. The company wasn’t on the Endangered Dividends List. But neither was the move a real surprise and it was clearly strategic, demonstrated by the stock’s stable performance since last week’s announcement.

Utilities’ AI Double Play

By Roger S. Conrad on Feb. 12, 2024

From Asimov’s benevolent immortal robots to the hellscape of “The Terminator,” artificial intelligence has been the stuff of popular imagination since the early 20th century. Now, the advent of “generative AI” is reshaping reality, with profound consequences for industries across the board. The basic idea is that computer systems can be “trained” on data to perform tasks that have historically required human intelligence. And depending on who you talk to, the possibilities are literally limitless, including outright replacement of human workers in professions now considered outside the purview of automation such as the arts.

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ABOUT ROGER CONRAD

Roger S. Conrad needs no introduction to individual and professional investors, many of whom have profited from his decades of experience uncovering the best dividend-paying stocks for accumulating sustainable wealth. Roger b