Does slow and steady still win the race?
Since Public Utilities Fortnightly first published the first Fortnightly 40 report in 2005, it’s become a barometer of the U.S. utility industry’s financial performance—or to be more precise, of long-term stock performance for utility shareholders.
We designed the F40 model specifically to measure long-term performance, because utility investors typically don’t expect their shares to produce overnight growth. Instead they want a steady and predictable dividend, and perhaps a little share price growth to provide some hedge against inflation. As AGL Resources CFO Drew Evans told Fortnightly in an interview for this year’s F40 report, “Nobody is looking for double-digit growth from utilities; they’re looking for mild growth in dividends. Slow and steady wins the race.”
It’s no surprise, therefore, that companies with strong positive cash flow and dividends tend to rise to the top of the F40 ranks, while companies with weak or negative cash flow, or small or zero dividends, gravitate toward the bottom. This makes perfect sense, as steady cash flow and dividend yield comprise the historic bedrock of the investor-owned utility value proposition.