A rising-rate world is a desert for utility stocks, but let’s say you take the long view and value their consistent dividend growth.
Two stalwarts in the utility sector are Emera Inc. (EMA-T) and Fortis Corp. (FTS-T) – which one looks like the better investment right now? A recent analysis by IncomeResearch.ca may help in your research about which is most suitable for your own portfolio.
It’s worth noting off the top these stocks have near identical five-year total returns – 37.6 per cent for Emera and 36.9 per cent for Fortis. In the past 12 months, Emera has fallen 14 per cent and Fortis has declined 6.1 per cent. Yield-wise, Emera was at 5.5 per cent in early September, while Fortis was just below 4 per cent.
Utility stocks are obviously out of favour as interest rate rise, but they retain some appeal for the investor who appreciates a consistently rising dividend. Globeinvestor.com data shows five-year annualized dividend growth of 9.4 per cent for Emera and 6.3 per cent for Fortis. Looking ahead, IncomeResearch.ca forecasts 6 per cent growth for Fortis, which has boosted its dividend for 44 straight years. Emera had been forecasting 8 per cent dividend growth, but reduced that to 4 to 5 per cent in order to retain funds for future projects.
IncomeResearch.ca forecasts Fortis’s dividend payout ratio at 61 per cent for 2018 and rates the stock low risk. “Substantially all of Fortis' assets are low-risk, regulated utilities and long-term contracted energy infrastructure,” it says. “No single regulatory jurisdiction comprises more than one-third of total assets.” Emera’s payout ratio is forecast at 87 per cent and the stock gets a rating of medium risk.
Emera’s higher 5.5-per cent yield will have obvious appeal at a time when five-year Government of Canada bonds yield at about 2.2 per cent. But Fortis seems to offer the best overall balance – decent yield, an impressive history of dividend growth and, according to IncomeResearch.ca, lower risk.
IncomeResearch.ca says both stocks offer similar potential for price appreciation. The 12-month price targets for Fortis and Emera are $47 and $45, respectively, which are roughly 10 per cent above early September levels in both cases.
Rob Carrick