Reeves Asset Management Finds Opportunity in Dividend Growing Utilities

June 11, 2019

Jay Rhame is CEO and a Portfolio Manager at Reaves Asset Management. He was named to the post on January 1, 2019. He is a member of the portfolio management team, serves on the risk management committee and is Co-Portfolio Manager of the Reaves Utilities ETF.

Mr. Rhame joined Reaves Asset Management as a full-time employee in 2005. Previously, he was an energy and utility analyst and one of the firm’s traders.

In this 3,040 word interview, exclusive to the Wall Street Transcript, Mr. Rhame elucidates how utility stocks can be exciting and profitable for any investor:

“I think the most important thing is these dividends actually grow if you compare them to fixed income. In our portfolio, the average utility has been growing their dividends 5%, 6%, 7% a year, sometimes a little bit higher than that. And that growth is really the key.

What we tell investors is: Obviously, the stock market goes up and down, and sometimes you have very little control of the volatility. But we know that when we invest in companies that are paying a dividend and growing that dividend, they’re creating value. And over time, that value creation should be reflected in the higher stock price.”

A current investment decision provides an example:

“The problem in California was that there were a couple big fires. The way the state has dealt with natural disasters like that is basically the utilities have strict liability.

If a utility pole or wire has caused a fire, anywhere, well, they’re liable for the entire damage. The last two years, the fires have been incredibly disastrous, and damages are likely in the tens of billions of dollars, so Pacific Gas and Electric was forced into bankruptcy.

And that’s really affected every company that deals in California. One in particular, Sempra (NYSE:SRE), is a utility, which includes San Diego Gas and Electric, but they’re a pretty diversified company. They just bought a utility in Texas — in Dallas, actually. They have an LNG export terminal that should be operational in the next several months.

They have a pipeline business in Mexico and some South American assets that they’re actually looking to sell right now.

But you add it all up, and in California, at least the electric utility portion of California is only about 25% of their total assets, whereas the company has had a long track record of very successful growth. They’ve been able to grow their dividend in the high single digits for a long time.

Right now, it may be an opportunity to buy a company that’s been successful for a long time but has come down in valuation because of its exposure to California.”

Get the complete detail by reading the entire 3,040 word interview, exclusive to the Wall Street Transcript.