Valuations are no doubt attractive in the utility sector. Earnings yields are high, dividend yields are high. A further reduction in policy rates should benefit both companies.
The only unique situation I see here is Emera is primarily a US player. As of the end of 2023, 62%+ of its rate base was from US subsidiaries. This could add some pressure on that area of things if the Bank of Canada continues to reduce rates while the Federal Reserve continues to stand firm. In addition to this, the company operates a huge chunk of its utilities in an area that is prone to disastrous weather conditions.
Emera is projecting to grow its rate base at a faster pace than Fortis through 2026 at 7% versus Fortis's 6.3%. However, these are nothing more than projections by the companies themselves and they still have to hit those guidance targets. I do prefer Fortis as it is a bit more diversified than Emera.
The other issue I see is the higher dividend payout ratio that has been trending for Emera. This is a company that has historically paid out anywhere from 55-65% of its earnings towards the dividend. We're now approaching 80% and trending upwards due to the pressures of higher policy rates. I don't think Emera will necessarily cut, but the dividend is teetering on the edge of being unsustainable at this point in time.