Solid dividend income from this growing utility

EMA - Emera

Emera Inc. is a leading North American diversified energy and services company with assets worth $32 billion. The company engages in the generation, transmission, and distribution of electricity and gas, and provides other utility energy services. Emera Inc. has operations in Canada, the USA and in four Caribbean countries. It derives nearly 65% of its earnings from the U.S. The company serves a diverse base of residential, commercial as well as industrial customers. It operates a predominantly regulated portfolio of electric and natural gas utilities, natural gas pipelines and energy marketing and trading serving 2.5 million customers across North America. It also has investments in renewable energy assets. Over 95% of Emera’s earnings now come from regulated operations. Emera reports its results in Florida Electric Utilities, Canadian Electric Utilities, Other Electric Utilities, Gas Utilities and Infrastructure, and Other operating segments.

Investment Data

Revenue Growth & Market Exposure

Emera has been turning its focus towards a more regulated asset portfolio. The company operates a strong regulated asset base, which provides earnings diversity, capacity and quality. Emera is also well-diversified by geographies and regulatory jurisdiction. Its portfolio includes some of the highest quality regulated utilities in North America. Given Emera’s experience and capabilities in the energy industry, it should benefit from significant investment opportunities in the North American energy market. The company is growing both organically and through acquisitions. 

Emera received a noteworthy decision from the New Mexico Public Regulation Commission approving a $2.5 million increase in base revenues to be phased in over two years and improved a weather normalization mechanism. The Commission also ruled that New Mexico Gas does not need to retroactively refund customers for savings related to U.S tax reform. Emera continues to execute on the transformation of Nova Scotia Power generation fleet from coal to cleaner sources of power. Nova Scotia Power has maintained stable rates since 2014 while continuing to focus on rate-based investments to reduce its reliance on coal.

Emera continues to invest in renewable and cleaner generation, in infrastructure modernization and in customer-focused technologies. The company is expecting over 70% of its capital investment program to be invested in Florida, driven by strong customer growth and the constructive regulatory environment there. The company is on track to invest approximately $2.5 billion at regulated utilities this year. 

Tampa Electric has over 445 megawatts of solar capacity installed and construction of the next 150 is also on track to come online in early 2020. By 2021 Tampa Electric will have over 640 megawatts of solar capacity and customers will get about 7% of their energy from the sun. Emera owns a strong regulated project pipeline in constructive regulatory environments, which should drive its top-line growth. The company is also estimating its rate base to grow at 7% through 2021. Emera’s ability to easily raise capital at attractive rates has been a strong enabler of its growth.

Dividends

Emera is a Canadian Dividend Aristocrat with a solid history of growing dividends. It has achieved a dividend per share growth CAGR of 9% in the last decade. The company increased its latest dividend payout by more than 4% and has an impressive yield of 4%+. Emera’s earnings have also increased at a rate of more than 13% CAGR over the last five years. Emera operates in stronger economic growth markets that offer superior capital structures and higher ROEs. The company targets 4%-5% annual dividend growth through 2022 and an average dividend payout ratio of 70% to 75% of adjusted net income. Emera’s rate-regulated utilities support strong, consistent earnings and cash flow. The company has been an excellent dividend growth stock, raising its payouts in line with its targeted annual growth rate through 2020. 

Emera’s portfolio of regulated utilities is the primary driver of its growth and these businesses are delivering strong earnings growth consistent with expectations. Following the sale of its Northeast gas generation fleet, over 95% of Emera’s future earnings and cash flow are expected to come from regulated operations. This shift to a more regulated structure will improve the quality and predictability of the company’s financial results. Emera is also repositioning its portfolio by the divestiture of its merchant gas plans at Emera Maine, and reallocating capital towards strong and fast-growing businesses, which improves the rate based growth profile of its portfolio. Though there would be a period of transition (Emera does not expect to have the earnings contributions from the Emera Maine in 2020 averaging $45 million per year or from the gas plants which contributed $18 million in the 1Q2019), the capital reallocation program is expected to improve Emera’s growth and should position it well to continue delivering long-term earnings and rate-based growth for its investors.

The capital program is expected to drive above average rate based growth of 7% through to 2021. Other capital investment opportunities including investments in solar and storm hardening in Florida, will enhance its long-term rate-based growth profile. Emera is well positioned to meet its capital commitments majorly through internally generated cash flows and asset sales. The company is also expecting Emera Energy’s marketing and trading results to contribute positively to earnings for the full-year.

Competition

Emera Inc. competes with several utility companies having a huge presence in the US and Canada. Fortis is a leading Canadian utility company with assets worth $50 billion and operating through ten utility operators. About 60% of its business is in the US and the remaining 40% is from Canada. Other large competitors are Brookfield Infrastructure and Canadian Utilities, a subsidiary of Atco Ltd. Canadian Utilities is one of the biggest utilities in Canada, with more than 90% regulated earnings. Algonquin Power & Utilities Corp is another diversified generation, transmission and distribution utility based in North America.

TickerKeyTickerCompanySectorIndustryScoreQuoteMarket CapP/EFPEEPSYield RawYieldPayoutRatioPaymentsDividendChowderGrowthRatingIncomeRatingTollboothAmbassadorAchieverAristocratKingCountryGraph
TSE:FTSFTSFortisUtilitiesUtilities - Regulated Electric0.6752.4624.3214.0321.513.740.03643.640.510741.910.094458Tollbooth - RegulatedNOYESYESNOCanada1
TSE:BIP.UNBIP.UNBrookfield Infrastructure PartnersUtilitiesUtilities - Diversified0.6755.7117.0669.5521.510.800.05245.243.648942.150.144577Tollbooth - RegulatedYESYESNONOCanada1
TSE:HHHydro OneUtilitiesUtilities - Regulated Electric0.4825.7515.3918.5521.511.390.03943.940.729841.010.081335Tollbooth - RegulatedNONONONOCanada1
TSE:EMAEMAEmeraUtilitiesUtilities - Diversified0.7053.8713.1815.0421.513.580.04554.550.684442.450.105369Tollbooth - RegulatedNOYESYESNOCanada1
TSE:BEP.UNBEP.UNBrookfield Renewable Partners L.P.UtilitiesUtilities - Renewable0.4966.9411.980.0021.51-0.370.04404.401.000042.170.073337Tollbooth - UnregulatedNONONONOCanada1
TSE:CUCUCanadian UtilitiesUtilitiesUtilities - Diversified0.7134.459.3811.3721.513.030.05065.060.574841.740.141959Tollbooth - RegulatedNOYESYESNOCanada1
TSE:AQNAQNAlgonquin Power & Utilitties CorpUtilitiesUtilities - Renewable0.7517.689.3217.6521.511.000.04764.760.842340.620.134378Tollbooth - UnregulatedNONOYESNOCanada1
TSE:NPINPINorthland Power Inc.UtilitiesUtilities - Renewable0.4834.336.6617.9621.511.910.03503.500.6283121.200.045535Tollbooth - UnregulatedNONONONOCanada1
TSE:ACO.XACO.XAtcoUtilitiesUtilities - Diversified0.6841.274.709.7021.514.250.04224.220.409641.740.166468Tollbooth - RegulatedYESYESYESNOCanada1
TSE:ALAALAAltaGasUtilitiesUtilities - Regulated Gas0.6416.034.4810.5821.511.520.05995.990.6316120.960.059936Tollbooth - RegulatedNONONONOCanada1
TSE:RNWRNWTransAlta Renewables Inc.UtilitiesUtilities - Renewable0.5514.503.8636.1521.510.400.06486.482.3490120.940.086945Tollbooth - UnregulatedNONOYESNOCanada1
TSE:INEINEInnergex Renewable Energy IncUtilitiesUtilities - Renewable0.5019.533.400.0021.51-0.520.03693.691.000040.720.036947Tollbooth - UnregulatedNONOYESNOCanada1
TSE:BLXBLXBoralex Inc.UtilitiesUtilities - Renewable0.4031.533.040.0021.51-0.320.02092.091.000040.660.069855Tollbooth - UnregulatedNONOYESNOCanada1
TSE:CPXCPXCapital Power CorporationUtilitiesUtilities - Independent Power Producers0.4528.142.96215.1721.510.130.06826.8214.769241.920.140256Tollbooth - UnregulatedNONOYESNOCanada1
TSE:TATATransAltaUtilitiesUtilities - Independent Power Producers0.348.252.2816.0521.510.510.02062.060.333340.170.020604Tollbooth - UnregulatedNONONONOCanada1

Bottom Line

Emera’s regulated utilities should continue to drive growth for the foreseeable future. The strategic reallocation of capital towards fast-growing businesses should further improve the growth profile of Emera’s portfolio. The company is in a good position to benefit from a period of regulatory stability given its regulatory initiatives undertaken in 2019. The company’s significant regulated rate base investment opportunities should drive both value for customers and investment returns for shareholders in the future. A strong investment-grade project pipeline, regulated assets, and solid earnings should help the company maintain a mid to high single-digit dividend growth in the future.

DISCLOSURE: Please note that I may have a position in one or many of the holdings listed. For a complete list of my holdings, please see my Dividend Portfolio.

DISCLAIMER: Please note that this blog post represents my opinion and not an advice/recommendation. I am not a financial adviser, I am not qualified to give financial advice. Before you buy any stocks/funds consult with a qualified financial planner. Make your investment decisions at your own risk – see my full disclaimer for more details.
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