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Quarter-End Insights

Clean Energy Provides Growth in Utilities Sector

We expect the incoming Biden administration to speed up investment in renewable energy.

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Like many of us, utilities will be happy to say goodbye to 2020. The sector lost all of its early-year momentum when the pandemic hit and has yet to recover, still down about 10% from its February peak. Utilities close 2020 as the second-worst-performing sector behind energy and enter 2021 with a much more attractive investment proposition.

Utilities reached a record-high 22% premium to our fair value estimates in early 2020, suggesting investment dangers were ahead. We didn’t anticipate such a quick correction in March, but we’re not surprised by the weak second-half rebound. Utilities now enter 2021 fairly valued. The sector’s 3.3% average dividend yield remains exceptionally attractive relative to ultralow interest rates.

Travis Miller does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.