Emera = dividend + growth

Emera 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 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 and the Caribbean.

Its business segments are Florida Electric Utility (largest by net income), Canadian Electric Utilities, other Electric Utilities, and Gas Utilities and Infrastructure. It also has investments in renewable energy assets.

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Key Investment Data

 

Revenue Growth & Market Exposure

Emera has been turning its focus towards a more regulated asset portfolio. Over 95% of Emera’s earnings now come from regulated operations.

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.

The company is also growing both organically and through acquisitions. Given Emera’s experience and capabilities in the energy industry, it should benefit from significant investment opportunities in the North American energy market. 

Emera continues to execute on the transformation of the 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.

NSPI anticipates earnings near the low end of its allowed ROE range in 2020. However, sales volumes and earnings are expected to be lower YoY, due to the impact of the COVID-19 pandemic on Nova Scotia’s economy.

Emera continues to invest in renewable and cleaner generation, infrastructure modernization, and customer-focused technologies. Its installed renewable capacity stood at 832MW as of June 2020. This marked growth of ~20% from 2017.

The company is expecting over 70% of its capital investment program to be invested in Florida, driven by strong customer growth and a constructive regulatory environment. Tampa Electric anticipates earning within its allowed ROE range for FY2020 and expects a higher rate base than in 2019.

The utility reported an increase of 2% in its residential customer base in 2020.Emera’s customer mix primarily comprises residential customers with less dependence on industrial and commercial customers. As a result, the company felt minimal impacts from the COVID-19 pandemic.

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 7.5%-8.5% through 2023. Emera’s ability to easily raise capital at attractive rates has also 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 of more than 8% CAGR  in the last decade.

The company increased its latest dividend payout by more than 4% and has an impressive yield of 4.8% and a payout ratio of 72%. Emera’s EPS has also increased at a rate of 17% CAGR over the last three years. It operates in stronger economic growth markets that offer superior capital structures and higher ROEs.

The company is targeting a 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. 

The company’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. The Emera-Maine transaction has also provided significant liquidity.Emera’s extensive $7.4 billion capital program is expected to drive above-average rate-based growth through 2023.

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 debt.

Emera (EMA) historical yield
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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 Partners and Canadian Utilities, a subsidiary of ATCO. Canadian Utilities is one of the biggest utilities in Canada, with more than 90% regulated earnings.

Algonquin Power & Utilities is another diversified generation, transmission, and distribution utility based in North America.

Bottom Line

Global energy markets are facing significant change and Emera is well-positioned to respond to changing customer demands, complex regulatory environments, and shifting trends.

The company’s significant regulated rate base investment opportunities should drive value for customers and investment returns for shareholders in the future. Emera’s ambitious capital investment program should position it well to continue delivering long-term earnings and rate-based growth for its investors.

Emera (EMA) historical PE
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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.