2020 01:17

Stocks

Black_Bear 180º

em 24/10/20 14:04

comentada em 26/10/2020 01:17

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I've been taking a look at some utilities companies like NEE, ATO, and AWR and I've noticed that they're all "highly leveraged" companies. Other companies (e.g. D, DUK) in the same sector also have this trait.

So this begs the question: is this high leverage a characteristic of this sector, or I've just cherry-picked some examples of it?

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Kilev 180º
em 24/10/2020 14:11

No cherry-picking at all. A closer inspection and you'll see that the best part of American companies work with a bit more leverage than Brazilian ones. This doesn't preclude us from shunning excessively leveraged companies though.

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Are utilities naturally highly leveraged? - #1 de 7

Huoya
em 24/10/2020 14:16

Of course is a characteristic of the sector. The sector needs a lot of investment for maintenance and improvements, whether in Brazil or in the USA.

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Are utilities naturally highly leveraged? - #2 de 7

oxe 1º

em 24/10/2020 15:36

High leverage is a common trait in utility companies, both because they need to make large investments every now and then and because their usually predictable and stea[REMOVIDO] cash flow allows it.

In any case, I'm of the opinion that leverage is a mostly irrelevant trait for assessment in a broadly diversified portfolio, regardless of the company sector. That's because, on one hand, if the company makes money despite of its debt, then said debt is probably in a safe level - and most ordinary investors couldn't accurately notice if that's not the case. And, on the other hand, whether its leverage is over the top or not, bankrupt companies are never good investments.

So, in my opinion, it's enough for most people to just look at the profits and its consistency over the time, since leverage in itself doesn't mean much regarding how well managed and lucrative a business actually is - which is not to say leverage is an useless metric for everyone and every company, only that for an ordinary investor investing in a sufficiently diversified manner it doesn't add enough information to justify the risks of human error in its analysis.