Reaves Asset Management Blog

New Look For Utilities: Still Defensive, But More Potential For Growth

Written by The Investment Team at Reaves Asset Management | Jan 13, 2022 4:08:02 PM

Utilities have always been considered a defensive investment. However, some of these dividend-paying, regulated monopoly, sleep-at-night stocks are now finding new growth opportunities through renewable energy transition projects.

At Reaves, we believe that with these new opportunities, some utility companies have the potential to deliver both earnings and dividend growth for at least the next decade. Driven by government policy and technological innovation, the cost to produce solar and wind generation has fallen so dramatically that they are the cheapest form of power in many parts of the United States. As a result, companies are shutting down existing fossil-fuel burning plants and replacing them with new, clean, wind and solar projects- and customers are saving money.

We believe the industry is on the verge of a massive capital expenditure cycle that will ultimately make the grid greener and power prices stable, if not lower. As mentioned in a prior blog, utilities earn a set return on the amount of invested capital they deploy. So, opportunities to invest in environmentally supportive renewable projects may have the potential to generate significant growth for years to come. Our CEO, Jay Rhame, talked about the role of utilities in our portfolios in a recent Q&A:

We strive to invest in companies which have traditionally been considered defensive but also offer the potential for sustainable growth. Utilities is one area today where we are finding that attractive combination as a new “green” trend springs forth.

Want to learn more about how Reaves is investing? Read the full Q&A, available below.