Frontlines

Deck: 
Will a back-to-basics strategy meet investor expectations?
Fortnightly Magazine - October 2004
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Frontlines

Will a back-to-basics strategy meet investor expectations?

It's an issue that is coming to the fore with greater force-the debate over how utilities should honor their obligation to stockholders. But this time there seems to be quite a difference of opinion over strategy-or so we found in our annual finance issue.

Read any one of this issue's articles on mergers and acquisitions (M&A), and you'll see financial experts and consultants making a compelling case why utilities need to consolidate. Then read our annual Q&A forum with four prominent utility CFOs (see p. 38) and you'll see that they argue for greater self-reliance and self-restraint.

At the heart of this debate is whether a back-to-basics plan (eschewing growth in favor of a reliable stream of dividends) will be enough to satisfy investors when interest rates rise or the economy begins to grow at a faster clip. How do utilities keep investors from being lured away by higher-yielding financial instruments such as U.S. Treasuries or competing equities with higher-paying dividends-all while maintaining their appearance as stable, low-risk investments? Also, will utilities lose out to growth stocks when they come back in the stronger part of an economic recovery?

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