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Florida Utilities: Reminds Me Of 'Jamming With Edward'

May 06, 2020 1:49 PM ETCPK, DUK, EMRAF, NEE, EMA:CA24 Comments
George Fisher profile picture
George Fisher


  • Florida utilities are like 'Jamming with Edward' - each one is terrific as an individual but combined are quite a powerful investment selection.
  • Florida is one of the top eight states for regulatory support of its utilities.
  • Of the four investor-owned utilities in the state, three are rated 'A' or 'A-' for 10-yr consistency in earnings and dividend growth.

Utility investors' long-term performance is highly dependent on their service location. Most utility companies' performances are largely dependent on several vital factors including: the amount of regulated profit it can generate; underlying economic and population growth; ability of management to generate above-average returns for shareholders. Too few investors spend the time and effort to appreciate what I believe is the most important investment consideration: regulatory environment under which each utility operates.

At the top of my utility due diligence research list is a review of the regulatory environment controlling the profitability of firms in their state. The Edison Electric Institute EEI, an industry-focused organization, offers a very telling graph. The following outlines the quarterly average allowed return on equity ROE for US electric utilities. For example, in the 3rd quarter 2019, various states issued final rulings on 18 rate review requests. The average allowed ROE was set at 9.55%, down slightly from 9.58% in the 2nd quarter and about equal to rates approved during the 3rd quarter 2018.

Of significance is the downward slope of allowed returns over the past 30 years with the allowed ROE peaking in late 2000 at over an 12.6% return. The average quarterly ROE has been between 9.5% and 10.2% since 2nd quarter 2012 when it first broke below 10.0%. The saving grace for utilities in an era of declining allowed returns is an equally declining curve on the sector's weighted average cost of capital WACC. While the WACC varies by company, an "average" current range for utility WACC is between 5.2% and 6.2%.

With a declining trend in allowed ROE across the sector and a likelihood, the trend will continue, especially in light of still-falling interest rates, credit agencies review every state's regulatory posture to determine the level of financial support offered to the utilities under their

This article was written by

George Fisher profile picture
I am the author of Guiding Mast Investments monthly newsletter, focused on timely dividend paying stocks. Our mission at Guiding Mast Investments is to help investors keep a steady pace of wealth accumulation as they navigate through their financial voyage.  I have been a Registered Investment Advisor, financial author, and entrepreneur. I bring a variety of expertise to my clients, from personal investment planning and management to stock market analysis skills. I am the creator of the late 1990s investment newsletter Power Investing with DRIPs focused on timely selections of dividend paying stocks. I have also published two books through McGraw Hill, All About DRIPs and DSPs (2001), and The StreetSmart Guide to Overlooked Stocks (2002). My work experience covers a variety of fields.Prior to being a RIA, I spent 15 years as a corporate manager at Georgia-Pacific Corp before venturing out on my own, operating several businesses from manufacturing to export marketing management. President Ronald Reagan appointed me to the National Advisory Council overseeing the Small Business Administration from 1988 to 1991. Now comes the obligatory disclaimers: The opinions and any recommendations expressed in this commentary are those of the author . None of the information or opinions expressed in this article constitutes a solicitation for the purchase or sale of any security or other instrument. Nothing in this commentary constitutes investment advice and any recommendations that may be contained herein have not been based upon a consideration of the investment objectives, financial situation or particular needs of any specific recipient. Any purchase or sale activity in any securities or other instrument should be based upon your own analysis and conclusions. Past performance is not indicative of future results. The information contained in this report does not purport to be a complete description of the securities market, or developments referred to in this material. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Expressions of opinion are as of this date and subject to change without notice. Either Mr. Fisher or his employer, if any, may hold or control long or short positions in the securities or instruments mentioned.

Analyst’s Disclosure: I am/we are long NEE, EMRAF, ERRAF, DUK. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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