Get 40% Off
🤯 This Tech Portfolio is up 29% YTD! Join Now to Get April’s Top PicksGet The Picks – Just 99 USD

2 Utility Stocks Whose Dividends You Can Rely On

Published 2019-03-20, 08:00 a/m
Updated 2019-03-20, 08:08 a/m
2 Utility Stocks Whose Dividends You Can Rely On

2 Utility Stocks Whose Dividends You Can Rely On

2 Utility Stocks Whose Dividends You Can Rely On

The utility sector is one of the best for dividend investors. Utility companies offer goods whose demands aren’t very sensitive to price changes and tend to have above-average dividend yields. Let’s turn our attention to two utility companies whose stocks income-oriented investors should strongly consider buying: Emera (TSX:EMA) and Fortis (TSX:FTS)(NYSE:FTS).

Emera In addition to offering a nice dividend yield of 4.81%, Emera shows several signs of dividend sustainability. The company’s operations are geographically diverse, with ventures in Canada, the U.S., and various Caribbean countries. Emera’s operations in Florida show particularly strong growth prospects.

TECO Energy (NYSE:TE) — a Florida-based energy utility company Emera acquired four years ago — expects to invest heavily in solar energy development over the next few years. Florida will likely be one of the nation’s leaders in solar energy, despite the southern state lagging behind other states. In other words, Florida is ripe for growth in this sector, and TECO Energy is poised to benefit.

A large chunk of the capital required to fund Emera’s growth opportunities will come from the sale of some of its current assets. The company will shed power-generation facilities that produce low margins, which will strengthen its financial stability. Furthermore, Emera’s focus on improving its balance sheet is a good sign. The company expects its debt level to decrease to 55% by 2020 from its current level of about 60% (down from 64% in 2016).

Emera expects to grow its dividends by 4-5% annually while keeping its payout ratio in the mid-70% range. Investors can expect Emera to make good on its dividend growth, as the company improves its operations and generates an increasingly higher income.

Fortis Fortis’s portfolio somewhat resembles that of Emera: the company has operations in the U.S., Canada, and the Caribbean. Fortis is also in the habit of growing its revenue base by way of acquisitions. The company has made several major acquisitions over the past few years that have contributed to earnings growth.

In 2016, Fortis acquired Michigan-based company ITC Holdings for $11.3 billion. The move propelled Fortis in the top 15 of the largest American public utilities by enterprise valuation. The acquisition also helped Fortis diversify its operations by allowing the company to break into several U.S. states.

Breaking into the U.S. was an important step for Fortis. The company now expects its subsidiaries in various U.S. states to provide more growth opportunities. If history is any guide, Fortis should keep rewarding its shareholders as the company improves its financial results largely as a result of its shrewd acquisitions.

Fortis has raised its dividends for more than 40 straight years. The company expects to maintain dividend increases of about 6% through at least 2022. Over 90% of the company’s revenues come from power-purchase agreements, which means Fortis’s revenues are stable and predictable. The company currently offers a yield of 3.68% and a payout ratio of 66.6%.

The bottom line Emera and Fortis both offer dividend investors stable dividend increases backed up by steady earnings growth. These stocks — like many in the utility sector — are also less risky than the average, which makes them strong prospects for your portfolio’s defensive needs.

Fool contributor Prosper Bakiny has no position in the companies mentioned.

The Motley Fool’s purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool Canada’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. Motley Fool Canada 2019

This Article Was First Published on The Motley Fool

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.