Global Investing

CHAPTER 19Utilities

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Utility companies around the world deliver natural gas, electricity, and water needed to run our businesses and households. Electricity may be generated by wind, solar, nuclear power, hydroelectric power, or coal. Since the cost of building these plants is exceedingly high, utility companies tend to hold a monopoly in the markets in which they operate. For this reason, and in order to ensure that all citizens have access to these necessities, utility companies are often regulated by government authorities, who determine the prices that can be charged to consumers. Population growth is another important macro variable since it drives demand for electricity, gas, and water. Keep in mind that every country (and sometimes each state or territory) has its own regulatory agency and so returns, allowed equity ratios, regulatory timelines for rate increases, stance on renewables energy investments, and so forth can vary significantly by location.

Data source: Bloomberg, as of March 18, 2022.

Since it is difficult for most people to live without these services, utility companies tend to have very stable earnings, generating consistent profits regardless of economic conditions. Utility companies usually have a limited ability to grow their business and so they also tend to pay out a higher portion of their earnings to investors in the form of ...