February 8, 2021 BARRON’S 19
ombudsman.
Consumer financial-services firms
should expect the CFPB to review rules on
payday lending, debt collection, student-
loan servicing, and fair lending, lawyers
say. The bureau may also reverse the regu-
latory flexibility that it granted early in the
pandemic to mortgage servicers that
missed deadlines for sending loss-mitiga-
tion notices, and credit bureaus and lend-
ers that were slow to investigate disputes.
New cryptocurrency regulations may
also be on the horizon. Gensler in recent
years has done research and taught
courses on blockchain and digital curren-
cies as a professor atthe Massachusetts
Institute of Technology.
The SEC may take a look at when digital
assets are deemed to be securities and how
they can be packaged into products like
exchange-traded funds and sold in line
with existing securities regulations, says
Amy Lynch, president of FrontLine Com-
pliance and a former SEC examiner.
Both the SEC and CFPB are expected to
dial up enforcement actions. Acting CFPB
director Dave Uejio, a veteran at the bu-
reau, has already directed its enforcement
division to expedite pandemic-related in-
vestigations. While the Trump-era CFPB
didn’t make Covid-related consumer harm
a focus of enforcement actions, it did leave
behind a road map of such issues that
might help guide the bureau’s new efforts.
As part of its supervisory work, the CFPB
last year sought information from compa-
nies on their pandemic response and chal-
lenges they were facing.
The assessments “were not designed to
identify violations of federal consumer
financial law,” according to a summary of
the findings published in mid-January, but
revealed consumer harms ranging from
inaccurate credit reporting to mortgage
servicers providing faulty information to
consumers about forbearances and failing
to process forbearance requests.
Given the bureau’s relatively light en-
forcement under Trump appointee Kath-
leen Kraninger, the findings suggest that
companies may have been “lulled into a
sense of sharing information that’s not
going to come back to haunt them,” says
Brian Fink, a lawyer at McGlinchey
Stafford and former program manager in
the CFPB’s office of supervision policy.
Now, he says, “the aggressiveness that ap-
pears likely to come is not something that
makes people sleep well at night.”
Sustainable investors are looking for
actions from regulators that could bolster
holdings that score well on ESG metrics.
Biden campaigned on requiring public
companies to disclose climate risks and
board diversity.
outlook through 2024.”
Within the sector—known for steady
but modest dividend increases—there are
plenty of utilities that have boosted their
recent payouts at a high-single or even
double-digit clip. A recentBarron’sscreen
highlighted some of those companies, in-
cludingNextEra Energy(NEE), whose
assets include the regulated Florida Power
& Light utility as well a growing renewable
energy business.
From 2017 through 2019, NextEra
raised its disbursement at an annualized
rate of about 13% from $3.93 a share to $5.
Last year, it was boosted to $5.60 a share,
or $1.40 following a stock split last fall.
The stock was recently yielding 1.6%,
about half the average for the sector.
But the stock is expensive, recently
trading at 37.6 times estimates 2021 profits.
“The valuation is pricey, but it is a great
company,” says John Bartlett, a portfolio
manager and analyst at Reaves Asset
Management. “The market’s not stupid.”
There have been a few exceptions for
utility dividends. One isDominion En-
ergy(D), which had to lower its dividend
last year after it divested itself of its storage
and gas-transmission assets, notably pipe-
lines, to Berkshire Hathaway Energy
for $9.7 billion.
Another isCenterPoint Energy
(CNP), a utility holding company that last
year ended up slashing its quarterly divi-
dend to 15 cents a share from 29 cents. The
company had a stake in a master limited
partnership that also cut its dividend.
CenterPoint Energy’s stock, which yields
3%, has a one-year return of minus 16%.
But as our screen found, there are a
number of utilities that have been boosting
their dividends by at least 6% annually
and often more:American Water Works
(AWK),Atmos Energy(ATO),CMS
Energy(CMS),DTE Energy(DTE),
andSempra Energy(SRE).
With dividend increases like that,
investors should consider utilities for
some downside protection.B
Such requirements would give investors
far more clarity, says Cheryl Smith, econo-
mist and portfolio manager at Trillium
Asset Management, because companies
would have to disclose ESG risks in securi-
ties filings and not just in “a glossy two-
page brochure with pictures of bunnies
and deer.”
The real challenge for the SEC “will be
to generate a set of intelligent disclosure
requirements that are also efficient” and
consistent with international standards,
says Joseph Grundfest, professor of law
and business at Stanford University and a
former SEC commissioner.
F
or companies with considerable cli-
mate risks, however, the required
disclosures may raise the cost of
capital as investors and ratings firms
digest the new data, analysts say.
That is a particular issue in the capital-
intensive energy industry, says Kevin
Book, managing director at ClearView
Energy Partners. “It takes a lot of money
going into the ground to get fossil fuels
out,” he says, and valuations in the sector
have only become more sensitive to the
cost of capital in recent years.
The SEC might also work to harmonize
the ESG terminology used by issuers as
well as by investment advisors, policy ex-
perts say. Issuers are “throwing out all
sorts of terms that aren’t consistent,” says
James Rich, a senior portfolio manager for
sustainable fixed-income strategy at Aegon
Asset Management, and regulators could
help standardize the definition of a “green
bond” or “sustainable” fund.
The Labor Department is also expected
to soften its stance on retirement plans’
use of ESG funds. A department rule last
year made it tougher for plans to include
these investments, but Biden has ordered a
review of any Trump-era rules that may
conflict with his administration’s environ-
mental goals. And while investors big and
small gain some powerful advocates at the
regulatory agencies, the financial-services
industry can look forward to stricter rules
and tougher enforcement.
Both the SEC and the Labor Depart-
ment are likely to put more emphasis on
mitigating conflicts of interest in invest-
ment advice, Morningstar’s Szapiro says.
For the SEC, that may mean rewriting
Regulation Best Interest, which governs
brokers’ recommendations to customers,
and attempts to raise their standards of
conduct—but the Commission is unlikely
to throw out the entire rule, he says.
The Labor Department, meanwhile,
might review rules governing advice on
rollovers from 401(k)s into individual re-
tirement accounts.B
INCOME INVESTING
Here Are 6 Utilities With
Fast-Growing Dividends
M
any utility stocks have re-
mained unloved through
much of the pandemic, their
attractive yields and reliable
dividends notwithstanding.
TheUtilities Select Sector SPDR
fund (ticker: XLU), a good proxy for
larger-cap businesses in that sector, has
a one-year return of about minus 6%,
versus plus 20% for the S&P 500 index.
Still, earnings, which help fuel divi-
dends, are holding up for most utilities.
And the utility stocks in the S&P 500
were recently yielding about 3.2%, com-
pared with around 1.5% for the broader
market.
The consensus FactSet 2021 earnings
estimate for the Utilities Select Sector SPDR
was recently $3.35 a share, down only 2%
from $3.42 nearly a year ago. The recent
estimate for the fund’s dividends per share
was $2.08, versus $2.21 a year ago.
So why have investors kept away?
Morningstar analyst Charles Fishman
says that utility stocks “were pretty pricey
going into the pandemic” and cites that as
“probably the main reason” for their un-
derperformance since. The Utilities Select
Sector SPDR fund recently fetched nearly
20 times its projected 2021 earnings, com-
pared with its five-year average of 18.3,
according to FactSet.
Still, in a Jan. 22 note, Fishman wrote
that he thought the utility sector was
fairly valued. “Growth investments in
renewable energy, grid modernization,
and electric vehicles should outweigh
higher regulatory, operational, and finan-
cial risk,” he observed, sizing up the re-
cent change in presidential administra-
tions. “We forecast that the U.S. utilities
we cover will invest $656 billion over the
next five years, more than consensus
expects and up from the $541 billion
spent in the past five years.”
In his view, that “supports our 5.5%
average annual industry earnings growth
By Lawrence C. Strauss
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