The recent spate of equity issuance is yet another sign of frothy valuations in the utility sector, but these moves set the stage for future growth. Investors should bide their time and wait for a pullback to buy our favorite utility stocks.
Our favorite electric utilities should be able to accelerate their earnings and dividend growth rates, thanks to growing adoption of renewable energy and utilization of gas-fired power plants. And unlike previous periods of growth, the latest boomlet doesn't involve taking on significant operating risk.
Recent downside in the Alerian MLP Index reflects a number of factors, including the group's outperformance relative to other energy stocks last year, the market’s growing concern about rising interest rates and worries that the slowdown in drilling activity will limit future growth opportunities.
The recent pullback in dividend-paying stocks means that two of our favorites at attractive valuations. Both could experience more downside in the near term because of concerns about rising interest rates, but remain solid holdings for the long haul.
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