December 29, 2020 - Douglas Myser

Biden tax hike to help utility stocks. Utilities aren't typically the most exciting companies on Wall Street. But if President elect Joe Biden is eventually able to reverse some of President Trump's tax cuts, it could prove a big win for investors in power and water companies. Utilities are legally allowed to pass higher tax expenses on to their customers. Experts aren't predicting a major increase in rates--especially in a still weak economy--but even a slight hike could help boost revenue and earnings for utilities as well as improve their balance sheets. "Any change in tax law would mean that the amount of money utilities collect goes up," said John Bartlett, president of Reaves Asset Management, which runs the Reeves Utility Income Trust and Virtus Reaves Utilities ETF. "There may not be a huge windfall, but it helps utilities from a credit and debt standpoint," Bartlett said. "The bottom line is that utilities have advantages over other stocks if there is tax reform." Biden tax hike to help utility stocks.

Power boost coming ? Utilities could use a jolt. The Down Jones Utilities Average is down about 1% this year while its more famous cousin, the Dow Jones Industrial Average, is up more than 3% and not far off an all-time high. Utilities are lagging behind the S&P 500 and Nasdaq by an even wider margin. But utilities might finally start to catch up. A potential increase in taxes for wealthy individuals--and not just businesses--under Biden could also push more affluent investors into utility stocks. That's because utilities pay big dividends, which often yield more than government bonds.

Growing fears about another wave of Coronavirus cases and potential state and city shutdowns also could help utility stocks because they are perceived as safer bets in a weak economy. "Utilities are more of a defensive sector. They could get a bump if there is more economic malaise and another lockdown," said Patrick Healey, founder and president of Caliber Financial Partners.