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Clean-Air Regulation Has Silver Lining for Utilities Stocks

Carbon-emissions laws have forced several coal-oriented utilities to improve their plants with multi-million-dollar investments, which, in turn, should contribute to dividend-growth opportunities.

Clean-Air Regulation Has Silver Lining for Utilities Stocks
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Charles Fishman: Climate change has been a front-page topic recently. At Morningstar, we believe investors need to be selective in how they look at the issue to determine who are the winners and losers as our country addresses carbon dioxide emissions.

One misconception that we commonly see at Morningstar is investors who think that just because a utility has a coal-fired plant it will be hurt by this regulation. We think it is helpful to look at the past and to see what happened when other air-pollution regulations were addressed. Specifically, when the Clean Air Act amendments were passed, utilities had to address sulfur dioxide emissions, which are the primary cause of acid rain. They invested hundreds of millions of dollars on scrubbers. Regulators, however, allowed a return on these investments, and utilities, by increasing rates, were able to grow earnings and grow their dividends.

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Charles Fishman does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.