They were mostly abandoned by investors while central banks were hiking interest rates, but now that confidence in continued hikes has waned, utility stocks aren’t just looking like a safe, defensive play — they’re widely outpacing the TSX.
Yes, investors are making a play on interest rates plunging in the future, said Veritas Investments analyst Darryl McCoubrey, and that’s helped return the sector to prominence, but such a recovery would not have been possible had several companies not spent the majority of 2018 attempting to vindicate themselves.
“The vast majority of funding was coming from more debt that really strained the balance sheets,” said McCoubrey, adding that U.S. tax reform had a negative impact on three acquisitions “and so debt became even more of a pronounced issue.” As Emera and its competitors continue to eliminate debt in a bid to prove that they’re self-funded utilities, they’ll be “back to being the boring, slow-moving, dividend-growing utilities, for the most part,” McCoubrey said.