This Canadian Utility Stock Is Positioned for Long-term Growth

A top-tier Canadian utility stock is well-positioned for steady long-term growth with less volatility.

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Stocks are good options for people with long-term financial goals like retirement. A longer investment period lets you benefit from a stock’s long-term growth potential while riding out market fluctuations or short-term volatility. But with a recession on the horizon, it would be wise to be defensive.

Utilities is a recession-proof sector because the constituents provide essential services such as electricity, gas, and water. Moreover, the everyday amenities they provide are highly regulated. If you were to invest today, Emera Inc. (TSX:EMA) is the preeminent choice for its visible growth plan.

Well-positioned for long-term growth

The $14.5 billion energy and services company operates in highly regulated environments, and 95% of its earnings come from regulated investments. Its current portfolio comprises six regulated utility companies and two unregulated firms. In the 2022 to 2024 capital plan, Emera will spend between $8.4 billion to $9.4 billion.

According to management, around 99.7% of the capital spend distribution is investments in regulated utilities. By year-end 2024, the baseline rate should grow by a compound annual growth rate (CAGR) of 7% to 8% to $28.5 billion. The visible growth plan should support sustainable dividend growth.

Emera will fund its capital investment plan through internally generated cash flows and debt raised at the operating company level. The utility stock is also a dividend aristocrat owing to 16 consecutive years of dividend increases. The most recent increase in September 2022 was 4.1%, and management extended its dividend growth guidance of 4% to 5% through 2025.

Its President and CEO, Scott Balfour, said the extension reflects management’s confidence in Emera’s high-quality regulated utility portfolio and its ability to drive earnings and cash flow growth.

Profitable operations

In 2022, Emera’s net income rose 79.8% to $1 billion versus 2021 despite significant headwinds like runaway inflation, supply chain disruptions, and intense weather conditions. Last year’s highlight was completing the Big Bend Modernization project at Tampa Electric in Florida.  

Management said the world-class facility reduces CO2 and is one of North America’s most efficient natural gas generation units. It adds that customers will save more than $700 million during the 30-year economic life of the plant. Emera reduced its CO2 emissions by 41% in 2022 compared to 2005 levels.

In Q1 2023, total operating revenues increased 6.99% year over year to $1.4 billion, while net income climbed 52.3% to $576 million compared to Q1 2022. Emera’s impressive financial results show the strength and ability of regulated utilities to provide reliable earnings, cash flow, and dividends.

The top-tier utility stock continues to beat the broader market year to date (+6.05% versus +1.04%). At $53.54 per share, the dividend offer is 5.17%.

Ready for what is to come

Management is aware of the coming significant changes to energy markets worldwide. It adds that Emera is well-positioned to respond to shifting customer demands, digitization, decarbonization, complex regulatory environments, and decentralized generation.

Emera plans to focus on decarbonizing its generation fleet by increasing investments in renewables and lower carbon energy sources to hit its 55% CO2 emission reduction target by 2025. More importantly, steady business growth with less volatility should deliver predictable returns to investors.

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 Christopher Liew has no position in any of the stocks mentioned. The Motley Fool recommends Emera. The Motley Fool has a disclosure policy.

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