One of the advantages dividend buying investors have is they are bias toward utilities or companies that perform like utilities. This means the investor looks for companies with a reasonable diversified customer base, but can act similar to a monopoly because prices can be increases every year. In the case of utilities the price increase comes from the Utility Board or Commission which sets the hydro rates every year, then tend to go up.
Utilities love hydro power, because after the capital cost of constructing the dam, the cost of generating electricity is very low. The maintenance of the wires and distribution is an on going cost, but the power costs are limited. Hydro is defined as green or renewable energy.
The other major elements of renewable energy are solar and wind and we are seeing more wind farms, more homes and farms with solar panels on them and battery storage facilities to ensure hydro flows through the day and evening. What companies do you buy?
The S&P Global Clean Energy Index is a good place to start and includes a 45% increase in prices over the past 12 months. That is the best reason to buy but there are others and David Berman outlined them in the Globe and Mail.
Wind and Solar are Economical
Years ago, renewable energy needed government support (when the writer put solar panels on my house, higher prices from the government were received for the length of the contract ). Technological advances have driven efficiency and reliability along with declining cost of wind and storage components. According to investment banker Lazard, the unsubsidized cost of wind energy has declined 70% over the past decade, while solar is down 89%. The decline makes them less expensive then coal and oil and closer to natural gas.
Growth in Renewables is an Unstoppable Force
Despite the President’s love for coal, US electricity generation from coal fell 22% from 2016 to 2019. Renewables are up 34%. Utility companies compare prices and are no longer building coal plants to generate electricity which is the reason why many coal companies went into Chapter 11.
Big, Savvy Investors are Embracing Renewable Energy
Most Fortune 500 companies have clean energy policies and all the big tech companies are trying to be carbon neutral by 2030. In addition, many large pension fund plans have a Power and Renewables Group to invest in renewable energy.
Even Big Oil Companies want some of the Action
The largest oil and gas companies have signed onto the Paris Accord and trying to determine how best to get into the renewable segment. BP and Total have spent billions and BP expects to increase renewable energy capacity to 50 gigawatts by 2030 and Total expects to generate 40% of its sales from low carbon electricity by 2050.
Linking to dividend paying stocks, oil and gas production is not going to stop, but companies will continue to spend billions on solar and wind and hydro, which means more and more homes will come with solar panels connected to the grid. For an investor, if the cash flows are similar to the good effects of an utility they are worth investing in. Whether you buy the utility or the Index fund, one or more should be in your portfolio.
There are more questions than answers, till the next time – to raising questions.