Your Antidote to Trading Trump Tweets
Strong Q1 results and guidance are the latest unmistakable sign utility stocks will keep building wealth this year.
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I hope Dividends Premium members have had time to check out the portfolio update I sent out Friday afternoon. It’s been a good year so far for our high quality, dividend stocks. And as I explain, our money should keep growing this year, despite ever percolating market disruption from politics.
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Imagine if your every tweet could move the S&P 500 by several percentage points—alternately crushing bulls and bears in succession, sometimes intra-day.
Maybe President Trump didn’t have quite that much influence over stock market traders last week. But with headlines like “World Breathes Sigh of Relief as Trump Spares Fed, IMF” making the rounds this weekend, we’re almost certainly going to see more of the same jagged action.
The good news is we don’t have to play that game. We can use the down days to buy and the up days to maybe take some money off the table. But high quality, dividend stocks will continue to build wealth. And in fact, this has been a pretty good year so far for our Dividends Premium Portfolio.
This is not to say American political uncertainty isn’t affecting the real economy: Early Q1 earnings reporters have been universally cautious on investment. And their number includes companies that would otherwise seem well positioned for Trump Administration priorities.
Leading industrial REIT Prologis Inc (NYSE: PLD), for example, has been a major beneficiary the past few years of “re-shoring” of manufacturing to the US, as well as “near-shoring” from Asia to Mexico. And that growth has been at least partly motivated by tariffs and the threat of more.
Yet during Prologis’ Q1 earnings call, management warned “recent uncertainty from global tariffs and their downstream impacts” has greatly increased tenants’ caution. And it cut investment plans for development starts.
Oil and gas producer Matador Resources’ (NYSE; MTDR) has prime acres in the Delaware Basin of the Permian and northern Louisiana natural gas proximate to LNG export facilities. Yet last week the company responded to weaker energy prices by cutting its drilling rigs from 9 to 8, deploying savings for a $400 million share buyback.
Less spending means slower growth. But Matador and Prologis have also protected investors against a potential recession later this year. And I expect similar action from companies in most industries.
One notable exception to the rule so far: Electric utilities and other power generators.
Skepticism about surging electricity demand from artificial intelligence has become fashionable. And the sentiment has likely affected benchmark natural gas prices, which have dropped below $3 per million BTU.
Nonetheless, electric utilities are still seeing real time demand growth at the fastest pace since the 1960s. And based on Q1 results and updated guidance so far, capital spending plans are if anything still increasing.
CenterPoint Energy (NYSE: CNP) last week raised its budget through 2030 by another $1 billion to $48.5 billion. And it highlighted another $3 billion of potential “incremental” CAPEX “by the end of the decade with likely more thereafter.”
CMS Energy (NYSE: CMS) noted a large data center project in its territory has “accelerated their load ramp up by almost a year.” The utility is gearing up to meet an additional 9 gigawatts of data center demand, now that Michigan has eliminated related sales and use taxes. And a major manufacturing plant under construction has raised its projected electricity demand by 10%.
First Energy (NYSE: FE) doesn’t produce electricity. But its $28 billion of planned CAPEX through 2029 includes massive opportunities in transmission and distribution, with this year’s planned spending 15% ahead of 2024. The company has received 15 “large load study requests for data centers,” with 9 GW of total load.
NextEra Energy (NYSE: NEE) is likely the most exposed US power sector company to future disappointment in AI-related electricity demand. And share performance lags the Utilities Select Sector SPDR Fund (XLU) by roughly 11 percentage points year-to-date. That’s despite the fact it’s the ETF’s top holding at more than 11 percent.
What you won’t find is weakness in NextEra’s 8.8% Q1 earnings increase and reaffirmation of 6-8% growth guidance through 2027. The Florida Power & Light unit (70% earnings) boosted regulatory capital employed by 8.1%, fueled by superior customer growth (1.9%) and 894 megawatts of new solar energy capacity.
Earnings at the unregulated Energy Resources unit rose 10% as the company brought another 700 megawatts of renewable energy and storage into service. It also signed on another 3.2 GW of renewable energy and storage contracts, making it 5 of 7 quarters at 3 GW plus. Backlog is now 28 GW, with the company on track to operate 70 GW total capacity by the end of 2027.
During the earnings call, CEO John Ketchum argued forcefully for what he calls “energy realism” and “energy pragmatism.“ That means “embracing” all forms of energy to meet the 450 GW or so of projected new electricity demand by 2030—and also recognizing “renewables and battery storage are the lowest cost form of power generation and capacity,” as well as the fastest to deploy at just 12 to 18 months.
Ketchum also pointed out gas turbines are in short supply and high demand. So are workers with the skills to build gas power plants. That’s why the most optimistic projections are for 75 GW of new gas generation to come on line by 2030—at three times the cost of just five years ago and twice the current price of new battery storage.
Similarly, until a developer can give a credible and firm all-in cost estimate to investors and regulators, there will be no new orders for new nuclear power plants. And even keeping old coal open—including plants currently converting to gas—would only add 40 GW.
A good CEO is their company’s salesman-in-chief. And Mr. Ketchum is certainly no different.
But consider the source: NextEra is also all in long-term on natural gas with the largest natural gas power plant fleet in the US, 30% ownership of the Mountain Valley Pipeline and the GE Vernova (NYSE: GEV) partnership on track to deploy new natural gas in quantity by the early 2030s. It’s also the world’s seventh largest nuclear operator. And it’s poised to add meaningful generating capacity, with the Duane Arnold nuclear plant nearing a profitable restart.
All US electric utilities are partly funding renewable energy construction with 2022 Inflation Reduction Act tax credits. And at least a dozen nuclear plants depend on IRA subsidy to remain profitable.
Fortunately, outright IRA repeal seems highly unlikely at this time.
That’s because Democrats are united in opposition, along with four Republican senators and 21 representatives. If the senators hold their ground—or if just 3 House members do—tax credits and their transferability (ability of developers to sell them) will survive the budget process.
If that happens, I would expect a powerful rally in utilities across the board, especially NextEra.
Utilities have also prepared for the worst by safe harboring ongoing projects. And neither is there much exposure to Mr. Trump’s tariffs: Just $150 million of NextEra’s planned $75 billion CAPEX is exposed to import taxes, thanks to heavy US sourcing particularly of batteries.