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Quarter-End Insights

Our Outlook for Utilities Stocks

Low gas prices and a warm winter are burning power generators.

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  • As natural gas and power prices dropped 30% in late 2011, coal generation fell to 39% of total U.S. generation in December, its lowest share in at least two decades.
  • Falling interest rates have been a boon for utilities during the last decade, but regulators are beginning to catch up and cut allowed returns--creating a huge earnings headwind for most utilities.
  • The average utility dividend yield at 3.7% remains historically high relative to interest rates, but investment requirements, rising interest rates, and slower usage growth could constrain dividend growth.
     

 

Travis Miller does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.