Do you dream of a steady stream of income that requires little to no effort on your part? Dividend investing offers an attractive path toward this goal, allowing you to receive regular payouts from companies that religiously share a portion of their growing profits with loyal shareholders. Investing in Emera Inc. (TSX:EMA) stock, a Canadian utility giant, could potentially yield more than $5,000 annually in passive income, while offering reasonable long-term financial security and portfolio stability.
Emera is a $13.9 billion Canadian electric and gas utility company that operates six regulated utilities worth $39 billion, serving 2.6 million customers in North America and the Caribbean territories. Its best-in-class assets, established dividend reputation, and capital growth potential make EMA stock a good investment for long-term passive income.
Emera: A best-in-class utility stock
Emera is a uniquely positioned Canadian utility stock to buy and hold for steady income growth, especially coming out of a vicious interest rate hike regime that ravaged some sector giants in 2022.
About 96% of Emera’s net income comes from regulated utility assets resulting in industry-leading earnings and cash flow stability. The company is more profitable than an average utility in North America. Its assets can produce operating earnings margins of 24.7%, which exceed industry averages of 15.7%, and net earnings margins around 13.8%, comfortably beating industry averages around 9.7%.
Most noteworthy, Emera’s largely self-funded $8.9 billion capital investment plan for 2024 through 2026 targets executing 7% annual growth in its rate base. Most of the capital budget (about 74%) is focused on Florida, an American state with the second-highest penetration rates for electric vehicles (EVs), implying significant demand growth for electricity. Florida investments could generate a return on equity (ROE) of 10.2%, which compares favourably with the company’s current ROE of 8.1% on a consolidated basis.
Emera could steadily grow cash flow in 2024 following authorizations to increase rates in key markets this year. New rates kicked in at Peoples Gas, NSPI, and Tampa Electric on January 1, 2024, and these could add nearly $250 million in cash flow this year. The company is recovering some inflation-linked value losses experienced during the past years.
Revenue and earnings growth should support Emera’s dividend growth policy and keep its payout rate sustainable in the future.
Should you buy Emera stock for the dividend?
Emera has established a 17-year unbroken record of annual dividend raises, and the utility stock may not give up its prestigious dividend aristocrat status any time soon. Investors looking to build a fortress portfolio that generates reliable passive income should consider snatching Emera stock’s 5.9% dividend yield and payout growth.
Emera currently pays 71.8 cents per share in quarterly dividends after raising its payouts at an average of 4.1% per annum over the past five years. If successful, the utility’s current capital investment program and growth rate should help sustain a 4% to 5% annual dividend growth rate through 2026.
The Canadian utility’s dividend looks healthy because it’s well covered by recurring earnings. The company paid out 78% of its earnings as dividends in 2023. Although payout rates have gyrated out of management’s dividend policy targets payout rate range of 70% to 75%, the company expects payout rates to eventually fall back within policy brackets as investment programs and organic growth steadily increase annual distributable earnings and cash flow.
How to generate $5,000 in annual passive income
To receive $5,000 annually, and more, in dividends from Emera, you may buy 1,741 shares at current prices, as summarized below, and hold them for the long term.
| Company | Recent Price | Investment | No. of Shares | Dividend | Frequency | Total Annual Income |
| Emera Inc. (TSX:EMA) | $48.87 | $85,082.67 | 1,741 | $0.718 | Quarterly | $5,000.15 |
While the investment could require a more than $85,000 one-time purchase, investors need not fork out that much at one go. A commitment to small regular periodic investments could build a formidable retirement nest egg over time. With patience and consistency, the financial goal begins to shape up.
That said, Emera is just one among several dividend growth and passive income investments on the TSX to choose from. It’s advisable to widely diversify your holdings among several names, as well as across asset classes including bonds and real estate investment trusts (REITs), to significantly reduce capital and income risks.
