Will Utility Stocks Rebound?

Utilities have not been doing well this quarter nor this year. Part of the reason is that investors have factored in an interest rate increase from the Federal Reserve. Investors flock to utility stocks for their generous dividends, but with higher rates, utes will be somewhat less attractive.

Many utilities have also had to spend a large amount of money upgrading their systems. That ain’t cheap. The problem is that the utes have faced a lot of pushback from regulators when they’ve attempted to pass those costs on to their customers. In a low inflation environment, it’s hard to justify those higher costs. Today’s industrial production report showed a 2.5% drop for utility production.

If that’s not enough, utilities are starting to face real competition from solar. Some utilities are trying to diversify and many are moving into solar as well. Whenever a sector has pricing difficulty, you often see the push for mergers. A few weeks ago, Duke Energy (DUK) said it’s going to buy Piedmont Natural Gas for $4.9 billion in cash.

I was on CNBC earlier today to discuss the outlook for utility sector.

Posted by Eddy Elfenbein on November 17th, 2015 at 9:13 pm

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