Jay Rhame is Vice President and Portfolio Manager at Reaves Asset Management. Mr. Rhame joined Reaves Asset Management as a full-time employee in 2005. He is an energy and utility analyst. He is a member of the portfolio management team and is on the risk management committee. In his exclusive 3,519 word interview with the Wall Street Transcript, Mr. Rhame details the utilities focus of his portfolio and why this current period of time will have exceptional returns to investors.
“So just as background, utilities earn a return on the infrastructure they provide. Power is actually just a straight pass through to customers. So if power prices are high or low, the utility doesn’t earn any money on that; they sell that power to customers at cost. So when costs are low, that enables the infrastructure part of the bill to take on a little bit more there. So we see power prices staying low; natural gas is cheap, and it’s abundant. Renewable energy has gotten a lot cheaper, and it’s very competitive in a lot of the country. And that creates a lot of headroom to replace a lot of wires and distribution systems, gas pipelines, water pipelines, stuff like that. So you’re starting to have these kinds of long-term backlogs of projects, which is very different.”
The specific returns are impressive:
“Most utilities are able to grow earnings in the kind of 5% range, but when you combine 5% earnings growth with a 3% or 4% dividend and also a dividend that’s growing at about the rate of earnings, the total return, it’s pretty attractive. So overall, it’s good. Interest rates will continue to be a factor, but I think it’s more of a short-term impact. Longer term, growth looks good.”
To get the specific stock picks that qualify for Jay Rhame’s Reaves Asset Management portfolio, read the entire 3,519 word interview in the Wall Street Transcript.
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