JotCast | 8/23/21 Conrad's Utility Investor Live Chat

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8/23/21 Conrad's Utility Investor Live Chat

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pete

6:15

any thoughts on Centerpoint preferred B that is a current hold. do you see any other preferreds that look interesting?

Roger Conrad

6:15

I don't have any recommendations for you today. But high yield will be the subject of the September issue of CUI.

Jon

6:18

Also, was wondering if you have ever looked into ReNew Power, apparently one of India's largest renewable energy companies that is going public in the U.S. via a merger with a SPAC. Does this company pique your interest at all? It would be nice to find another NEP located in a country with over 1b people and currently dependent almost entirely on coal!!

Roger Conrad

6:18

It definitely sounds like something to check out. We have been taking a look at some of the SPACs at our various advisories--most recently in a resources article in Deep Dive Investing that is investing in battery minerals. I think India is a very interesting market for renewables generally speaking--CLP Holdings (OTC: CLPHY) has become a major player there as well, and the Hong Kong utility provides a measure of stability as well. Thank you for the suggestion.

Ed

6:22

Where are you currently recommending parking cash right now?

Roger Conrad

6:22

Hi Ed. The investment I've most often recommended in our advisories is Vanguard Intermediate Term Tax Exempt Fund (VWITX)--which has extremely broad diversification, is focused on higher end credits with shorter-term maturities and thanks to very low expenses pays a still competitive dividend of about 2%. It also has an extremely good track record with its worst year in the past 10 a -1.56% total return in 2013, followed by a recovery the next year. I think it's a bit expensive now but one I'm comfortable holding as a cash alternative. Other than that, my best advice is to be in something you can get your money out of when you want it--since if there is a correction in the near term it's almost certainly going to be a buying opportunity and highest quality dividend paying stocks are still the best way to get income and keep up with inflation.

Max

6:24

Your opinion of ENB and their ongoing regulatory issues please.

Roger Conrad

6:24

I think they're basically in good shape on the big ones, with Line 3 still progressing and nearly ready to open according to management and Line 5 apparently winning a court victory. But the real appeal of a big diversified midstream company like Enbridge is it has the heft to survive a number of regulatory hits and still produce needed cash flow to fund dividends and growth. And at a price in the upper 30s, I think it's at an attractive entry point as well. This is a midstream I cover in CUI as well as EIA and will have comments in the September issue as I do every month.

Charlie S

6:28

Hi Roger! A long while ago you used to follow the closed end bond fund, FAX. What is your current opinion of the stock. I am looking for some minimal bond buffers in my portfolio and believe a basket of bonds may provide some diversification in a bond yield "wasteland". Or perhaps you have a better recommendation? Thanks again for hosting these web chats and your incredible knowledge, sage advice, patience (and stamina). Charlie

Roger Conrad

6:28

Hi Charlie, Thanks for those kind words. I think Aberdeen Asia Pacific Income Fund is still a decent income investment, pretty much doing the same thing it's done since inception all the way back in April 1986. I think it would do a lot better if the Australian dollar could hold its own better against the US dollar, which it should as this commodity price cycle continues. But in the meantime, the fund appears to be able to support a pretty strong payout. Again, I intend to have more high income opportunities in the September issue of CUI.

Allan

6:31

Can you comment on improving price of SSEZY?

Roger Conrad

6:31

SSE Plc isn't a company currently in my Utility Report Card coverage universe. But it's definitely one we could pick up in coming months. I think it's getting some interest for its battery investment and as a potential takeover target with Elliott Management getting involved. I would rate it a hold for now pending further review. But thanks for the suggestion.

Allan

6:31

Will you include SSEZY in CUI?

Roger Conrad

6:31

I've just put it on my list for consideration. Thanks again Alan.

Jimmy

6:35

How do you see the saga of VST playing out over the next 6 minths. Thanks.

Roger Conrad

6:35

Hi Jimmy. I think the stock is at least headed to the low to mid-20s--though an overall stock market drop would mean all bets are off. Among potential catalysts for a higher price are the strategic review announced earlier this month with results due in November, improvement in earnings with continuing momentum from Q2 results released in early August and a potential takeover, with either an internal leveraged buyout or private capital purchase as the most likely candidates. In any case, this is a well managed company that investors have overly punished for trying to play by the rules during Texas' February freeze. I think it's a great buy for patient investors at this high teens price.

Dan E

6:36

Hi Roger, with respect to VST, are there any near term catalyst on the horizon that could get the market excited about VST again? Thanks for your thoughts.

Roger Conrad

6:36

Hi Dan. I named a couple in my answer to Jimmy's question. I think we'll hear something at least by November when the strategic review results are announced that will move things.

Jimmy

6:39

I read that China is now trying to clean its pollution problem and I also read they commission a new coal plant about once a month. Can they be serious about cleaning the air if both of these things are true?

Roger Conrad

6:39

I think China is in a very difficult position trying to balance affordability of electricity supply with environmental hazards--which even if CO2 weren't a global issue would be at crisis proportions due to very poor air quality in many places. They are huge investors in solar technology and their mass production has really driven down the price of components, which has eased adoption around the world. And major generators like Huaneng Power that I cover in the Utility Report Card are replacing coal with renewables. But the country as a whole looks pretty set to me to be the world's biggest CO2 emitter for a long time to come.

Guest

6:44

Hi Conrad, could you please give us your views on PNW. It is heavily dependant from the AZ regulator, and from I have understood of the situation, there is a tough discussion currently going on regarding the acceptance of a rate increase. The comment from the CEO about "defending the dividend" is a bit disturbing, could your tell us how safe you think the dividend is, and if the current discussion with the regulator if unsuccessful is there a risk that PNW's management could end up freezing its dividend.

Roger Conrad

6:44

I answered a question pretty extensively on Pinnacle West earlier in the chat and hopefully you've been able to read it by this time. I don't think the utility would cut the dividend even in a worst case outcome in the rate case. But I do think freezing the dividend or increasing it only by a token amount in October is likely if the ACC decision comes in close to the ALJ's recommendation. The big issue is recovering at least some of the investment made to clean up Four Corners--a coal plan that's nonetheless critical for reliability for a utility added 2.3% customers a year. The ALJ disallowed the whole thing. My view is ACC will restore some, an outcome well priced in by the stock below our highest recommended entry point of 80. But if the decision is too negative for the utility, I may advise investors move on, despite the company's ability to absorb it financially. One contentious decision often leads to another and we don't want to be in states where regulators become hostile, even with utilities

Roger Conrad

6:44

that have as big a rate base opportunity in renewable energy as Pinnacle does with solar energy.

Robert A

6:50

Roger: Thanks again for your help and hard work. I have a macro question about the wireless spectrum the carriers acquire from the US government. Where does the government get this spectrum? Is there a limitation as to how much is available? Why is some spectrum better than others? Thanks, ROBERT

Roger Conrad

6:50

In the early days of wireless auctions there was plenty to sell off. What's been auctioned recently was owned by broadcasters and government entities. There's still more that potentially could be sold off. But getting to your question about some spectrum being "better" than others, the answer really depends on what sort of network a company is trying to build. Verizon for example needs spectrum compatible with its millimeter wave technology, which requires a much denser presence than what for example T-Mobile US is doing but is ultimately much higher capacity for 5G. The need to get C-Band spectrum to build out this network is why Verizon made such a huge splash at this year's auction--though it did pay less per population reached than anyone else. My view as you might have gleaned from my comments in CUI is Verizon's network will ultimately prove the highest quality in 5G, despite T-Mobile's US early lead due to technology that requires less infrastructure. But the larger point is the value of spectrum

Roger Conrad

6:50

basically depends on what individual bidders need. Verizon very much got what it needed and wanted this year.

Guest

6:51

Roger, thank you for your answer to the life and blood of Utilities. You are the Benjamin Graham of common sense, practicality and value Utility/Energy investing.. Thanks once again.

Roger Conrad

6:51

Thank you so much for those kind words and for participating today.

BKNC

6:53

I know that AGL will be splitting into two stocks in the future. We have an ADR right now. When they split will there be any issues with people in the US being able to trade both pieces? I just do not want to get stuck with something I cannot move.

Roger Conrad

6:53

There's no indication we won't be able to own both stocks as US investors, mostly likely in ADR form but failing that with an over-the-counter traded share as pipeline company APA Group (ASX: APA, OTC: APAJF) does. I will keep you as informed as I can if something happens that causes me to doubt that. But I think at this point, our risk is just that they're not able to complete the split economically--which in my view is relatively low.

Roy W

6:56

Thanks for your thoughts. I agree that the older satellites offer poor broadband service. And I also agree that government broadband has been awful. So here's a link to Starlink, https://www.starlink.com/ and here's a review: https://www.cnet.com/home/internet/spacex-starlink-satellite-internet-... Supposedly the quality will improve as more satellites are launched and more ground equipment added. Also, it's not clear how long it would take to add customers at scale. Thus the picture to me is still fuzzy, although I think Starlink should be part of the conversation.

Roger Conrad

6:56

Thanks Roy. I will look into it. I admit my view is probably clouded by the colossal boasts made by startups in the past about superior satellite networks that eventually proved empty. I do know that if developers want to compete with the Big 3 that basically dominate US wireless, they're going to have to do a lot better. But I'm very interested if there is a new technology that does that.

Guest

7:01

CWEN vs CWEN.A The "A" shares offer a slight bump in yield, based I assume on being non voting shares, but I never see you mention it as a option to get a higher yield

Roger Conrad

7:01

The "A" shares have been around since Clearway was known as NRG Yield. My view is they're likely at some point to be converted into the C shares for simplification purposes. At parity, that would give A holders a slight gain and it would seem likely there would be a small premium involved to secure full support and get it done. Other than the price, which gives you 20 basis points of higher yield, I don't think there's much difference for buy and hold investors--though the C shares do have more liquidity, which is why I hold them in the portfolio. The main thing is not to pay more than our highest recommended entry point of 33 for Clearway C shares, or 31 for the A shares.

Wayne

7:04

I do not have much exposure to renewable energy in my portfolio other than what is happening within Dominion Energy. Would Brookfield Renewable Partners (BEPC) be the best place to add that exposure and is the price still attractive in your view?

Roger Conrad

7:04

As I said answering an earlier question in the chat, I think Brookfield partners units (BEP) and C-Corp shares (BEPC) are both high quality holdings. I don't recommend buying either over 40. But if you can get them below that price you can pretty much lock them away. Other candidates to boost renewable energy exposure in a portfolio would be Atlantica (NSDQ: AY), Clearway (see comments above) or Enel SpA (OTC: ENLAY), which I also highlighted earlier in the chat. Whatever you choose, I think this is a good time to add exposure to renewable energy--and these adopters from the CUI portfolio are about the lowest risk, highest yielding way to do it.

Guest

7:09

Hi Roger, I have questions and concerns about both PPL and CNP. PPL: You give a C rating to PPL and buy below prices of 32 and 36 in a recent CUI issue and in the URC, respectively. If there is any chance of a dividend cut, I will sell PPL. Why should there be talk of a cut? Can't they adjust their capital structure to support the existing dividend rate or slowly grow into it? Why should investors support these big deals if the final result is a dividend cut - this is a poor business decision. We invest in utes for the dividends and some capital growth. There are plenty of other good choices should PPL cut. CNP: CNP only pays a 2.43% dividend; looks like they cut it by half during the covid-19 lockdown? Why is there no discussion of raising the dividend from such a low rate? Again, dividends are important to investors. Please give me good reasons to stay invested in these 2 utes.

Roger Conrad

7:09

I do think there's a chance of a dividend cut at PPL. As I said in the August issue Endangered Dividends List section, management has not come clean on what its dividend will be after it completes the acquisition of Narragansett from National Grid (NYSE: NGG). It at first indicated it would be level with what it pays now but has since seemed to express preference for more debt reduction from a "reset." The reason I think its worth holding onto at this time is the yield of 5.7% definitely reflects the likelihood of a cut, possibly as much as 35-40%. Since management isn't saying anything definitive, I would not rule that out. But the important thing is PPL shares already reflect it. So if the cut is less than than--which is quite possible--then we could get a pop in the stock. I also think PPL post-merger is a potential takeover target. I understand the frustration with an unknown dividend cut. I don't think it helps PPL stock, just as the same thing has hurt AT&T shares. But I do believe there's value,

Roger Conrad

7:13

As for Centerpoint, I also addressed this stock earlier in the chat. But briefly, I think we could see significant share price appreciation from either a takeover, an increase in value of Energy Transfer LP units held by the company after the sale of Enable Midstream (which was the reason for the 2020 dividend cut), and the growth of the utility itself. I'll also point out that Centerpoint has increased its dividend by a penny a share since the cut--not enough certainly to restore the old rate by any means. But it seems pretty clear to me they will be increasing going forward.

Guest

7:13

Hi Roger,

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