Tomorrow’s high-earning, high-dividend-paying U.S. utilities will likely be the ones that capitalize on today’s high-growth opportunities in Latin America. 

The World Bank forecasts that Latin America’s power consumption will more than double between 2010 and 2030, where $430 billion (some estimates are as high as $1 trillion) will be needed to meet demand as a result of a fast-growing middle class.  

This contrasts with government projections that U.S. electricity demand with grow barely 1% (0.7%) annually until 2040, whereas in certain Latin American countries annual electricity demand exceeds 4% annually.

Electricity demand growth has been so slow in the U.S. as a result of the 2008 financial crisis that slowed the economy, and more energy efficient technology. The result has been an uneven recovery where some utility service territories have recovered unevenly.

Utilities have been extremely focused on the growth problem. To improve growth they have acquired smaller, faster growing utilities; acquired regulated or distribution utilities to bolster market orientated activities; and pursued electric cars and other distributed technologies to increase sales.

But even as many of these strategies offer potentially higher growth, it’s still unclear how effective many will be, particularly untested ones.

What’s not unclear is that for profits there is no substitute for strong, growing electricity demand, which is what makes tapping Latin America so much more attractive than other strategies.  

Of course, tapping emerging markets means being able to evaluate risk, work in different cultures and be extremely customer focused – a skill set that many U.S. regulated utilities lack.

Further, investors may be skeptical of U.S. utilities’ ability to capitalize on Latin America, given that more than 15 years ago various utilities went on an international push that ended in failure.

But some companies are showing they can expand beyond their developed economy strongholds, where growth has been slow, to higher growth emerging markets such as Latin America. These will achieve a higher growth rate and pay higher dividends than their peers. 

This is the skillset that will distinguish good companies from great utilities from good utilities, and great utility investments from good utility investments.

We’ve seen this strategy played to great effect by telecoms such as AT&T (NYSE: T), which is a Utility Forecaster core holding. With its acquisition of DirecTV, AT&T stands to become one of the largest pay-TV providers and give the company a stake in 11 Latin American countries. And with the acquisition of Iusacell, and plans to acquire Nextel Mexico, the company stands to expand its mobile services to millions more.

For subscribers, we review the progress of various utility company initiatives in Latin America.