Canadian Utilities is one of the largest utilities in Canada. Atco Ltd is its holding company with a 52% stake in it. Canadian Utilities has core investments in electricity, pipelines & liquids, and retail energy business units, as well as its international operations in Australia and Latin America.
Its segments are Electricity (more than 70% of earnings), Pipelines & Liquids (~40%), and corporate and others (~-10%). The company owns an extensive network consisting of 75,000 km of electrical powerlines, 64,000 km pipelines, six global generating plants with more than 247 MW in generating capacity, 85,200 cubic meters per day water infrastructure capacity, and natural gas and hydrocarbon storage capacities.
Canadian Utilities is a $20 billion company with a globally diversified portfolio. Canada is its principal place of business accounting for 95% of revenues, while Australia constitutes ~4% and other countries are at 1%.
The bulk of its adjusted earnings come from five utilities – electricity transmission and distribution, natural gas distribution and transmission, and international natural gas distribution.
- Opportunity Score: 65
- Ticker: TSE:CU
- Sector: Utilities
- Industry: Utilities - Diversified
- Market Cap: 9.23B
- P/E: 25.63
- Dividend Yield: 5.21%
- Payout Ratio (Earnings): 133.27%
- Canadian Dividend Aristocrat: YES
- Chowder Score: Members Only
- Revenue Growth: Members Only
- Dividend Growth: Members Only
- Dividend Growth Fit: 6/10
- Dividend Income Fit: 7/10
Revenue Growth & Market Exposure
Canadian Utilities is a regulated utility with 95% of its earnings coming from regulated sources. The remaining 5% is derived from long-term contracted assets. The company owns regulated electric and gas distribution and transmission business serving more than two million customers around the world.
Canadian Utilities engages in delivering integrated business solutions in Utilities, Energy Infrastructure, and Retail Energy. The company serves a wide range of industrial and commercial customers and has a consistent record of quality service and products.
Canadian Utilities provides innovative and customer-focused infrastructure solutions. Given its large scale and inherent cost controls, Canadian Utilities has been successful in achieving better operational efficiencies over the years.
The North is regarded as a long-term growth area for Canadian Utilities and the company maintains strategic investments and partnerships across all three northern territories. The company will focus on geographic diversification, protecting its core utility assets, optimizing energy infrastructure assets, and adding new growth platforms for future growth.
Canadian Utilities continued to execute on its $3.5 billion capital investment plan focusing on building a globally diversified portfolio of utility and energy-related infrastructure assets, over the period 2020-2022.
The company regularly invests in regulated utilities and long-term contracted assets, which support stable and secure cash flows. It has come a long way in improving its earnings quality today, with regulated earnings now accounting for ~95% of total earnings from less than 50% back a decade ago and 86% a year ago.
Canadian Utilities is expanding its renewables footprint and sold the entire Canadian fossil fuel-based electricity generation business in September 2019. The company also continues to achieve rate base growth across most of its utilities and benefit from cost efficiencies.
It also gained from contributions in international electricity operations from the 50% joint venture ownership in LUMA Energy.Canadian Utilities announced the acquisition of the Pioneer Pipeline for $255 million during the last quarter. It experienced lower adjusted earnings in the utilities and energy infrastructure business during the quarter.
The company continues to make good progress on regulatory decisions in electricity and natural gas transmission, growth in the regulated rate base, earnings growth in the hydrocarbon storage business, and cost efficiencies. The strong backing of ATCO company which is a leading diversified global corporation further provides clear visibility to future growth.
Canadian Utilities is a Canadian Dividend Aristocrat and has increased its dividend for 49 consecutive years since 1972. The company sports an impressive dividend yield of 5.4% and has compounded its dividend growth at a rate of ~9%+ CAGR over the last three, five, and ten years. The company last raised its dividend by 4% annually.
A disciplined approach to growth, strong financial and operating performance, continued investment in regulated and long-term contracted assets has helped the company maintain its dividend growth streak in the past.
Its regulated business is expected to demonstrate strong growth through regular capital investments, ongoing earnings, and rate base growth. With ~95% of Canadian Utilities’ revenue being regulated and the remainder supported by long-term contracts, the company enjoys very stable recurring earnings.
Stable cash flows and a strong balance sheet have also resulted in strong credit ratings.Canadian Utilities’ ongoing capital investment and high-quality earnings should drive utility asset growth in the future. The company is also moving towards cleaner sources of energy by divesting from its coal-fired electrical generation assets.
Canadian Utilities is expecting a high-quality earnings base, on the back of strong investments in regulated utility as well as long-term contracted assets through 2021. These investments should support future cash flow and dividend growth. The company has continued its strong record of dividend growth. Highly regulated consistent earnings and an above-average dividend yield offers income-seeking investors a growing dividend.
Canadian Utilities competes with several utility companies such as Fortis, Brookfield Infrastructure Partners, Emera, Algonquin Power & Utilities, 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 Partners and Algonquin Power & Utilities. The latter is another diversified generation, transmission and distribution utility based in North America.
|TSE:ACO.X||ACO.X||Atco||Utilities||Utilities - Diversified||0.61||41.80||4.80||19.03||19.03||2.20||0.0429||0.8151||4||1.79||0.1672||6||7||Tollbooth - Regulated||YES||YES||YES||NO||Canada||1||4.29|
|TSE:BIP.UN||BIP.UN||Brookfield Infrastructure Partners||Utilities||Utilities - Diversified||0.61||68.19||22.69||85.13||85.13||0.80||0.0376||3.2072||4||2.04||0.1297||8||6||Tollbooth - Regulated||YES||YES||NO||NO||Canada||1||3.76|
|TSE:CU||CU||Canadian Utilities||Utilities||Utilities - Diversified||0.65||33.76||9.23||25.63||25.63||1.32||0.0521||1.3327||4||1.76||0.1435||6||7||Tollbooth - Regulated||NO||YES||YES||NO||Canada||1||5.21|
|TSE:EMA||EMA||Emera||Utilities||Utilities - Diversified||0.69||56.16||14.19||14.85||14.85||3.78||0.0454||0.6746||4||2.55||0.1052||6||9||Tollbooth - Regulated||NO||YES||YES||NO||Canada||1||4.54|
|TSE:FTS||FTS||Fortis||Utilities||Utilities - Regulated Electric||0.62||54.46||25.30||20.96||20.96||2.60||0.0371||0.7769||4||2.02||0.0951||6||7||Tollbooth - Regulated||NO||YES||YES||NO||Canada||1||3.71|
|TSE:H||H||Hydro One||Utilities||Utilities - Regulated Electric||0.51||29.63||17.71||10.04||10.04||2.95||0.0342||0.3439||4||1.01||0.0761||3||6||Tollbooth - Regulated||NO||NO||NO||NO||Canada||1||3.42|
Canadian Utilities proudly holds the longest track record of annual dividend increases of any publicly traded Canadian company.
It also has a long track record of earnings growth through various regulatory and macro-economic cycles. The company should continue its dividend growth streak driven by strong investment in regulated assets and infrastructure growth projects.
Canadian Utilities is making strong efforts to expand its business into new markets and business lines and continues to pursue cost-savings and efficiencies. A solid history of dividend consistency and dividend growth further marks Canadian Utilities as a solid dividend income play.
It is a good candidate for investors seeking stable income growth, given its attractive dividend yield.