The stock market will remain choppy until the rate campaign by the Bank of Canada (BOC) reaches its endpoint. According to Governor Tiff Macklem, the governing council might implement more rate hikes to bring inflation down to its 2% target. The timetable is uncertain, although BOC’s projection is mid-2025.
Meanwhile, the utility sector should look attractive to investors seeking shelter during this challenging environment and beyond. Emera (TSX:EMA), particularly, is set to dominate the TSX for its defensive characteristics and generous dividend yield.
The top-tier utility stock should likewise be on the radars of ESG (environmental, social, and governance) investors due to its climate commitment. Management aims to achieve net-zero carbon emissions by 2050. At $51.04 per share (+2.4% year to date), Emera pays a hefty 5.46% dividend.
Investment takeaway
The $13.93 billion energy and services company owns assets that should provide long-term value to shareholders. Emera has six high-quality regulated electric and natural gas utility companies (Canada and the U.S.). It has ownership stakes in three unregulated companies that complement the core business.
In the first half of 2023, net income jumped 99.3% year over year to $588 million. Emera’s president and chief executive officer (CEO) Scott Balfour, said, “Our team continues to execute well on our proven strategy, and despite the continued headwinds of high-interest rates and overall inflationary pressures, we are driving solid results for customers and shareholders.”
Since 95% of adjusted net income comes from regulated assets, Balfour is confident that Emera will continue to provide predictable, reliable earnings and cash flow growth for shareholders. The company will deploy an $8 billion to $9 billion capital plan to increase the rate base growth by 7-8% through 2025. It should translate to earnings and dividend growth.
The regulated assets operate in favourable economic jurisdictions without obstacles to achieving the goal. Moreover, the population growth in the areas should drive customer growth and load growth through electrification. Florida, the fastest growth state in the last two years, is the capital plan’s primary focus (75% allocation).
Balfour added. “As economic growth continues in our service territories, we remain focused on meeting growing demand and achieving a balanced energy transition that delivers increasingly clean energy while maintaining grid reliability and continues to consider cost impacts for customers.”
Dividend contender
Emera is equally unwavering in its commitment to dividend payments (four times a year or every quarter), as evidenced by 16 consecutive years of dividend increases. The payout has increased by 4.34% in the last five years. With the multi-billion-dollar capital program, management’s dividend-growth target through 2025 is 4-5%.
Besides a defined or clear path to growth, Emera’s electric utility business is enduring and essential to millions of customers. Expect revenues to remain stable and earnings to grow alongside rate increases.
Emera is an ideal anchor stock despite strong headwinds like rising interest rates, persistently high inflation, and slowing economic growth. It will dominate the market because of its defensive qualities and durable cash flows. You have a dividend contender and safety net rolled into one.
