WEC - Dominion Energy: Here Are 2 Better Utilities Worth Buying
2024-01-29 07:30:00 ET
Summary
- It may cost more than $1 trillion to upgrade the U.S. electric grid in the coming decades.
- Dominion Energy’s balance sheet is improving, but an elevated payout ratio likely precludes future dividend growth for at least several years.
- Two other electric and gas utilities could be interesting substitutes.
- These two options boast investment-grade balance sheets, well-covered dividends, and are 20% undervalued.
- The duo could be set to outperform both Dominion Energy and the broader market over the next 10 years.
Based on my preferences as a dividend investor, I find that there are some interesting options within the utility sector. Similar to what I recently discussed in an article on American Water Works ( AWK ) regarding water utilities, there are a few things I like about utilities overall (e.g., water, electric, and natural gas):
Dominion Energy: Here Are 2 Better Utilities Worth BuyingFor one, utility services are an essential part of the economy. Utilities and the services that they provide to customers are the only thing keeping us from taking a huge step backward technologically.
Not to mention that the outdated infrastructure of the U.S. is costing approximately $150 billion to the economy each year through power outages, per the Department of Energy. That is why it's likely that $1 trillion or more will be spent over the next few decades to modernize the U.S. electric grid. Such massive investment amounts should leave electric utilities with ample investment opportunities for decades to come.
Finally, the regulated nature of the utility sector means that these investments are likely to be adequately rewarded by public utility commissions. This is because, if utilities aren't allowed to earn appropriate returns on equity, our electric grid will continue to suffer. Perhaps it is just my optimism, but I don't believe anybody wants this to be the case, at least not intentionally. Everybody ends up a loser if public utilities investments aren't encouraged.