With the Q3 earnings season kicking off, Utility companies are preparing to release their numbers in the next couple of weeks. Notably, the Zacks Utility sector gained 3% in the third quarter.
Factors Boosting the Utilities
A major factor which boosts the utility sector is that there exists no substitute for the energy-related services rendered by the utilities. The endless demand for electricity and utility services will never cease to exist, thereby conferring a consistent flow of revenue to these companies. Thus utilities are considered as a safe haven.
Utilities generate more or less stable earnings unless any sudden event impacts their operations adversely. This regulated nature of operations provide them stability and in turn they reward their shareholders with steady dividend rates.
Moreover, the predominant domestic focus shields utilities from foreign currency translation issues. Also the major utility providers make frequent modernizations of their grid system and distribution networks to offer seamless flow of electricity to customers. In fact, it is these modernization initiatives that saved the grid systems from getting severely damaged from the widespread hurricane rampage that hit the coastal U.S. in the last couple of months.
Further, stringent emission regulations implemented by Obama prompted utilities to take steps to lower emission levels. Although it is a favorable development from the environmental point of view, utilities had to make huge investments to ease the transition to renewables.
However, President Trump’s recent initiative to repeal the Clean Power Plan on economic growth grounds is expected to give a temporary breather to utilities that produce major part of their electricity from coal.
On the other hand, realizing the need for clean energy a number of major utility providers like NextEra Energy and Duke Energy Corporation (DUK – Free Report) have already taken initiatives to produce electricity from natural gas and alternative sources. Considering the fact that renewable energy is the ultimate future of energy resources, these initiatives will boost the growth of alternative-energy utilities, in the long run.
