Emera Inc.’s U.S. Acquisition Makes This Stock Even More Attractive

Emera Inc.’s (TSX:EMA) purchase of U.S. energy company Teco doubles the company’s size and establishes a strong presence in the United States.

| More on:
The Motley Fool

Emera Inc. (TSX:EMA), the parent company of Nova Scotia Power, has boosted its potential for growth south of the border with the purchase of U.S. energy company Teco for a whopping $10.4 billion. The deal, which effectively doubles the size of the company, makes Emera’s stock—already a hit with many long-term investors—even more eye-catching as it skews its assets towards the United States.

The deal boosts Emera’s assets to around US$20 billion and its electric and gas customers to more than 2.4 million.

The purchase has been approved by Teco’s board of directors and is expected to close by mid-2016 once it has been cleared with federal and state regulators in Florida and New Mexico, where Teco has its operations.

In a statement, Emera noted just how important those new U.S. markets could be for the utility: “Teco Energy’s operations are located in vibrant markets experiencing job growth and a strong housing market that are expected to contribute to some of the strongest customer growth in the U.S.”

Interestingly, the deal means that 56% of Emera’s assets will now be in Florida, followed by 23% in Canada, 10% in New England, 6% in New Mexico, and 5% in the Caribbean. The sale will make Emera one of the 20-largest utilities in North America.

Analysts were keen on the acquisition, including Ben Pham of BMO Nesbitt Burns. “Other than the obvious benefits of increased scale and geographic and regulatory diversification, the acquisition provides access to a future low-risk growing earnings stream and a new natural gas utility platform,” said the analyst.

Pham added that while the acquisition metrics appear rich, they are below the level of recent transactions and, more importantly, do not reflect the significant future earnings potential of Teco.

“While we’re reiterating our Market Perform rating for EMA given the large financing overhang and deal risk, we see long-term upside as cash flow and dividends rise over time, creating a positive bias for long-term investors seeking an attractive, low-risk growing yield amid a 1.5% bond yield environment,” he said.

Emera also notes that its acquisition will be accretive in the first year because Teco has $1.7 billion in net operating tax losses and tax credits. So, no major cost cutting is needed to make the deal financially attractive to shareholders.

Emera currently pays a quarterly dividend of $0.47 per share with a dividend yield of 4.5%. The utility has increased its dividend 11 times since 2007, and has boosted its five-year dividend-growth target to 8% per year.

While the deal may appear risky at first blush, it will mean tremendous opportunities for Emera if they can pull it off. After the acquisition was announced last Friday, Emera announced this week that it had raised $1.9 billion from a group of banks to help pay for the purchase of Teco, a positive sign that the market is also supporting the deal.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Doug Watt has no position in any stocks mentioned.

More on Dividend Stocks

Specialty Brands faces higher raw materials costs.
Dividend Stocks

What’s Next for Premium Brands Stock?

Shares of the specialty food production and distribution company have fallen about 25% since last October.

Read more »

Double exposure of a businessman and stairs - Business Success Concept
Dividend Stocks

2 Interesting Buys in Any Market

Here are two intriguing buys in any market climate that offer defensive appeal as well as growth and income earning…

Read more »

Dividend Stocks

TFSA Investors: 3 TSX Stocks for Tax-Free Passive Income

These Canadian corporations have strong visibility over future earnings and dividend payouts.

Read more »

Simple life style relaxation with Asian working business woman healthy lifestyle take it easy resting in comfort hotel or home living room having free time with peace of mind and self health balance
Dividend Stocks

Lazy Landlords: 3 Cheap Canadian REITs to Buy in May 2022

You can become a passive landlord today by investing in Canadian REITs. Here are three cheap REITs to consider this…

Read more »

Target. Stand out from the crowd
Dividend Stocks

4 High-Yield TSX Stocks to Buy Ahead of Their Ex-Dividend Dates

If you have some cash lying idle, consider these high-yielding TSX stocks.

Read more »

growing plant shoots on stacked coins
Dividend Stocks

Passive Income: 3 TSX Stocks With Rapidly Growing Dividends

Worried about inflation? Here are three passive-income stocks to buy that pay rapidly growing dividends.

Read more »

Family relationship with bond and care
Dividend Stocks

Retirees: 4 Safe Stocks to Buy for Decent Passive Income

Retirees can offset the impact of runaway inflation by buying safe dividend stocks to create more cash flows.

Read more »

Canadian energy stocks are rising with oil prices
Dividend Stocks

3 Canadian Energy Stocks to Buy for Reliable Passive Income

Canadian energy stocks are gushing cash. Here's three top stocks that are perfect buys for reliable passive income.

Read more »