Will a back-to-basics strategy meet investor expectations?
Richard Stavros is the Executive Editor of Public Utilities Fortnightly.
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 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?