One widely held belief among investors is that utility stocks pump out stable and consistent dividends. Because of this, these companies are theoretically safe and reliable sources of regular income.

However, societal changes over the past several decades, and improvements in energy efficiency, have made it difficult for utility incumbents to sustain these habitual payouts.

The Motley Fool's Sean O'Reilly, Tyler Crowe and Taylor Muckerman discuss the changing landscape in the industry, and speculate as to how its future might shape up.

A full transcript follows the video.


Taylor Muckerman: There really aren't that many names on the dividend aristocrat list and like you said, we'll talk about it later, but they're mostly utilities which is a fairly stable industry.

For now who knows the disruption that solar and wind power and renewable energy will cause? But for the last 100 years or however long we've really been relying on coal and natural gas power, and steam power, and everything, utilities have been the real only consistent dividend payers in the energy industry.

Tyler Crowe: And surprisingly they haven't done as great as I think so many people say.

Muckerman: Right. I think it's one of those just old tales.

Sean O'Reilly: Well it's regulated. Regulators try to basically guarantee a certain growth on capital.

Muckerman: And at one point they were able to grow, but the population of the U.S. has kind of stabilized, we're not in need of so many new power plants as we were back in the 40s, 50s, 60s when the baby boom was coming on. And now all those folks are old, they're living in their houses, they have kids, but they're having kids at a lesser rate. Even our generation now is having kids at a lesser rate than that. So you're seeing population ...

Crowe: Throw in energy efficiency and you're looking at flat to 1% electricity growth. And if you even look at what you called the storied names in utilities. You think of somebody like a Southern Company (NYSE:SO), a Duke Energy (NYSE:DUK), somebody like that. They've cut their dividends actually multiple times in the past 10-15 years.

O'Reilly: Did they do any ... because Taylor was talking about prudence and during good times and everything. Did they overreach, get into natural gas when it was 13 bucks?

Crowe: Well these projects take forever to build, so sometimes you just, it's not overreaching when it takes place. But if 5 people have a nuclear power plant or a big coal plant coming online in the next 5 years and they all come on that line at once, they're like, "Well we didn't really expect that to happen."

O'Reilly: Oops.

Crowe: So much for that one.

Muckerman: Yeah had 1 or 2 of them come online, sure they'd be sitting pretty. But everybody wants a piece of that.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.