When stock markets and the world in general are in a state of flux, you head for safe harbours. Generally, these harbours are defensive stocks. Utility player Emera (TSX:EMA) is one of the safest stocks to buy right now. Around 95% of the company’s earnings are derived from regulated investments. It services 2.5 million customers across Canada, the U.S., and the Caribbean.
Emera has a dividend yield of 4.5%
Emera has consistently beaten the TSX Utilities Index over the last two decades. Over 20 years, it has given its shareholders a return of 9.1% compared to 8.5% by the index. In the last three years, it has returned 7.8% compared to 6.2% for the index and roughly around 10% in the last five years.
Its regulated revenues generate predictable cash flows and have helped it pay out regular dividends. Emera has been paying out a dividend since 1992 and has increased its payout in 25 out of 28 years. Its forward yield stands at a very healthy 4.5%. The company has increased dividends at a CAGR of 6% since 2000 and plans to increase dividends between 4% to 5% until 2022. This will assure investors of a stable income for the next three years at least.
Emera has a long-term payout ratio of 70-75% of net income. This guidance would mean an average payout of 72%, which should not present a challenge to the company. Emera also runs a DRIP (dividend-reinvestment program), which is great for investors to accumulate shares at a discount.
Emera’s earnings have grown from $294 million in 2017 to $708 million in 2019, even as revenue fell from $6.23 billion to $6.11 billion in the same period. Its earnings per share has grown by 21% in the last three years. All of these figures shine light on a company that is deploying capital efficiently.
The Florida push
The company has diversified over the years, and the United States now accounts for 65% of its revenue. Around 55% of its revenue comes from Florida. For the second quarter of 2020, Florida Electric’s net income increased by $21 million to $146 million in Q2 2020 compared to $125 million in Q2 2019. For the six months ended, the figures are $225 million in 2020 compared to $186 million in 2019.
Emera has a $7.5 billion capital-investment plan to drive base growth rate through 2022, out of which 70% will be invested in Florida to achieve its 8.2% rate base growth. The company is investing $850 million to install 600 MW of solar by 2021 (roughly 550 MW is already in service) and will invest $850 million more to install an additional 600 MW by 2023.
September hasn’t been a good month for stocks with a lot of companies giving up gains. Emera is not one of those companies. It entered September at $52.88 and is now at $54.05. Analysts have given it a target of $61.54 — an upside of 13%. When you add the dividend payout to this, you understand why Emera is a favourite in a volatile market.
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.