There is plenty of attention given to some of the popular Canadian utility companies and Canadian dividend stocks like Fortis (TSX:FTS), and Canadian Utilities (TSX:CU) – and rightfully so. They own the two longest dividend growth streaks in the country and are foundational stocks for income investors.
There are 11 Canadian Dividend All Stars in the utility industry. One that doesn’t get covered as much as it should is Emera (TSX:EMA). It might surprise you, but Emera is one of the largest utilities in the country and with a market cap of around $14 billion, is almost twice the size of Canadian Utilities.
Emera's (TSE:EMA) Consistent Outperformance
Not only is it one of the largest, it has been a consistent performer. Over the past three, five, ten, and twenty year periods, the company has outperformed the TSX Utilities Index. That level of outperformance is quite impressive.
How did it fare during the past year of turbulence? Surprisingly, it has underperformed. As the company’s share price disconnected from the Index in July of this past year. It has since struggled to keep up with the Index.
Market Cap: $13.02 billion
Forward P/E: 18.04
Dividend Growth Streak: 14 years
Payout Ratio (Earnings): 96.84%
Payout Ratio (Free Cash Flows): Premium Members Only
Payout Ratio (Operating Cash Flows): Premium Members Only
1 Yr Div Growth Rate: 4.10%
5 Yr Div Growth Rate: Premium Members Only
Stocktrades Growth Score: Premium Members Only
Stocktrades Dividend Safety Score: Premium Members Only
While this might be concerning, there is a reason for this disconnect. The Utilities Index contains several renewable energy companies and this past year, their stocks have been white-hot. On the flip side, if you take a look at the traditional, regulated utilities, you’ll notice that they are all underperforming the Index.
The only one outperforming is Hydro One (TSX:H). Emera is the second-best performing in this sub-industry which is yet another sign of its status as one of the most reliable. That’s right, it is outperforming peers such as Fortis and Canadian Utilities.
A reliable dividend stock
Let’s turn our attention to the dividend. At 14-years and counting, Emera’s dividend growth streak is in the top third of the country. Historically, Emera has averaged 6% annual dividend growth. While the pace of dividend growth has slowed slightly, it is still on lock to deliver mid, single-digit dividend growth year over year.
How can investors be certain? Well for starters, Emera’s dividend is well covered. Although it accounts for a high percentage of earnings currently, on a forward basis the payout ratio drops to 72%. Furthermore, the dividend accounts for only 43% of operational cash flow. Investors might be looking at the high payout ratio as compared to free cash flows (781%) but as high CAPEX companies, comparing the dividend against FCF in the utility industry is not ideal.
If you had any further doubt, it is worth noting that Emera has issued dividend growth guidance of 4-5% through 2022. The company has consistently delivered and met dividend growth guidance. Transparency on future dividend growth is a luxury and much appreciated by dividend growth investors.
Clear path to growth
Emera has plans to ramp up growth through a $7.5 billion capital program. The program is expected to generate an 8.2% compound annual growth rate in rate base growth. The company aims to fund said growth through a mix of cash flows, debt, and equity.
The balanced approach to capital projects will enable the company to further strengthen its balance sheet. In recent years, the company has been focused on reducing its debt load and it is targeting debt to equity of 55%. This is down from 65% in 2016.
Overall, Emera is a pillar of consistency. It has delivered strong performance and is one of the best utility stocks on the TSX Index. Although it is no longer the high-growth stock it once was, being a Canadian dividend All-star, investors can still count on mid-to-high single digit growth, plus a safe and reliable dividend.