Financial Analysts Journal

When regulators grant changes to utility rates of return, they estimate growth on the basis of gross domestic product (GDP). But do utilities have any chance of growing at the same pace as GDP? The answer is no — with huge consequences for utilities and their consumers. With equity costs outpacing allowed rates of return, utilities aren’t being valued correctly. As a result, the industry risks falling behind other sectors in terms of infrastructure investments and technology innovation.

The pros and cons of dividend pay-out reductions and stock repurchase programs in uncertain economic times.

The Dow Jones Utility Average currently stands at its lowest level in five years. Electric and gas utilities, along with U.S. companies generally, have been consistently lowering their payout ratios over the past several years, and that downward trend is projected to continue. What do these facts portend for utility investors in the near future?