According to Roger Conrad of Conrad’s Utility Investor, second-quarter earnings results show that top-tier utility companies are not only demonstrating exceptional business performance but are also positioning themselves for significant future growth. Year-to-date, a representative portfolio of 41 utility companies has achieved an average return of 13.4%, substantially outpacing the S&P 500.
The utility sector is capitalizing on the artificial intelligence boom, providing the essential infrastructure for its expansion. While some long-term electricity demand projections may be ambitious, current company results and guidance confirm that growth is at its fastest rate since the 1950s.
Investments in the regulated power and natural gas grid are considered low-risk, largely due to a favorable regulatory environment. Today, capital expenditures are often pre-approved by regulators, and investments are typically recovered through rate riders as they are incurred. This modern framework mitigates risk and offers a stark contrast to the 1970s and 80s, when cost recovery was determined retroactively.
While major pipeline or transmission line projects can take years, most grid upgrades are completed within months, enabling companies to maintain tight cost controls. This results in extraordinarily predictable and robust earnings growth, though it has made finding energy distributors at attractive entry points challenging in recent years.
A standout in the sector is Atmos Energy Corp. (ATO), which recently raised its fiscal year 2025 earnings guidance for the third time this year. While the company exhibits strong fundamentals, potential investors should be aware that its current stock valuation offers a modest dividend yield of just over 2%.
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