This Utility Stock Will Power You Through a Recession

Emera Inc. stock can be a solid defensive pick for long-term investors. It has a high dividend yield and is fairly recession-proof.

| More on:
HIGH VOLTAGE ELECRICITY TOWERS

Image source: Getty Images

The way financial pundits are talking about it, you’d think that we are already slam-bang in the middle of it. That’s right, we are talking about the dreaded ‘R’ word: Recession. It’s been a few months since everyone is expecting the global economy to bottom out, and while that hasn’t happened yet, it’s a good idea to be prepared for any eventuality.

You need rock-solid stocks in your portfolio to cushion you from the impact of a recession. Utility player Emera (TSX:EMA) is one such stock. Emera has approximately $31 billion in assets and 2018 revenues of more than $6.5 billion. The company primarily invests in regulated electricity generation and electricity and gas transmission and distribution with a strategic focus on transformation from high carbon to low carbon energy sources. Emera has investments throughout North America and in four Caribbean countries.

Emera’s Numbers

Emera’s second quarter of 2019 net income was $103 million compared with net income of $90 million in the second quarter of 2018. The company’s year-to-date operating cash flow, before changes in working capital, increased by $8 million to $775 million, compared with $767 million in the 2018 period. This increase was thanks to its utilities operations in Florida and New Mexico.

Emera is trading around $57 and its current forward price to earnings ratio is 20 while its forward dividend yield is 4.2%.  Emera’s estimated five-year earnings growth stands at 3.8% which means the stock is trading at a slight premium.

Emera has a stable dividend yield and since most (80%) of its businesses are regulated, cash-flow is not going to be a problem for the company. This means the company can continue with its traditional 5-6% increase in its dividend payout. During a recession, it is these regular payouts that will ensure money keeps coming into your account.

The Verdict

It could be argued that Emera is already a hot stock. The perception that it is a safe stock has caused a lot of demand for it and its stock price has rocketed. As Fool contributor Daniel Da Costa reported, Emera is a stock he holds a ‘sell’ rating on because the stock has already run up 50% in less than a year.

Mind you, he says it’s a solid long-term stock but he says it’s over-bought right now. This shouldn’t deter you from adding it to your portfolio. If the price drops, average it out. Analysts have a 12-month average price target of $58 for Emera, which is marginally above its current trading price.

Another point to keep in mind is that a utility company like Emera is rate-sensitive. A rate cut will mean the stock price will go up and vice versa. If the whole world is worried about a slowdown, it stands to reason that federal banks in Canada and the United States will cut rates to boost growth. Emera will only benefit from this.

Emera might be slightly expensive but if you don’t have defensive plays in your portfolio, this could be one of your best bets.

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 Aditya Raghunath has no position in any of the stocks mentioned.

More on Dividend Stocks

Two seniors float in a pool.
Dividend Stocks

TFSA: How to Earn $1,890 in Annual Tax-Free Income

Plunk these investments into your TFSA to earn passive income and avoid the taxman.

Read more »

Engineers walk through a facility.
Dividend Stocks

1 TSX Stock I Wouldn’t Touch With a 10-Foot Pole

AtkinsRéalis (TSX:ATRL) is one TSX stock I'd never invest in.

Read more »

edit Woman in skates works on laptop
Dividend Stocks

3 No-Brainer Stocks to Buy Under $30

These three stocks all offer a huge deal for investors looking for dividends, as well as growth that will last.

Read more »

You Should Know This
Dividend Stocks

How to Convert a $300 Monthly Investment Into $338 in Monthly Income

If you want a certain amount in monthly passive income, invest a similar amount today and leave the rest to…

Read more »

Increasing yield
Dividend Stocks

3 Income Stocks With Big Yields to Consider in April 2024

If you haven’t yet made your March investments, here are three income stocks to buy the dip and lock in…

Read more »

Senior Man Sitting On Sofa At Home With Pet Labrador Dog
Dividend Stocks

RRSP Investors: Don’t Miss Out on This Contribution Hack!

This hack has so many benefits for you -- not just when you put it in your RRSP but for…

Read more »

A red umbrella stands higher than a crowd of black umbrellas.
Dividend Stocks

Passive Income: 2 Safe Dividend Stocks to Own for the Next 10 Years

Dividend stocks such as Manulife and Fortis can help you generate a stable and recurring passive-income stream.

Read more »

Young woman sat at laptop by a window
Dividend Stocks

3 Dividend Stocks Everyone Should Own for the Long Haul

For investors looking for top-tier dividend stocks to buy and hold for the long term, here are three of my…

Read more »