Forget Air Canada: Buy This Magnificent Utilities Stock Instead

A Dividend Aristocrat in the utility sector is a better buy than Air Canada.

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The global pandemic had a catastrophic impact on commercial aviation and airline companies suffered severe damage. After years of record results and record growth, Air Canada (TSX:AC) came crashing in 2020. Besides hitting rock-bottom ($12.15) in March, the stock lost 53.1% for the year compared to +86.9% in 2019.

We’re now in post-pandemic and the share price hasn’t even topped $30 since closing at $48.51 on year-end 2019. As of this writing, the share price is $18.07. Investors waiting for a breakout should forget Air Canada and instead move to a more stable and predictable sector like utilities.

Emera (TSX:EMA) is a defensive asset and a Dividend Aristocrat. The stock hardly experiences wild price swings but the dividends can compensate if it declines. If you invest today, EMA trades at $47.45 per share and pays a generous 5.95% dividend.

Active stock        

Air Canada recorded 27 consecutive quarters years of revenue growth and profits before the global pandemic. The stock ranked seventh in the inaugural TSX Top 30 List, the flagship program for Canada’s top growth stocks. In 2020, net loss reached a staggering $4.65 billion compared to the $1.47 billion net income in 2019.

Calin Rovinescu, its president and chief executive officer (CEO) then, said 2020 was the bleakest year in the history of commercial aviation. He added that government-imposed travel restrictions and quarantines deeply affected operations and all stakeholders.

Nonetheless, Air Canada remains one of the most active or traded stocks on the TSX with a 50-day moving average of $18.37 and $26.04 52-week high. According to Michael Rousseau, Air Canada’s current president and CEO, the demand for air travel is back, as evidenced by the 2023 operating revenues.  

In 2023, operating revenues increased 32% year over year to a record $21.83 billion, while net income was $2.27 billion compared to the $1.7 billion net loss in 2022. Notably, it was Air Canada’s first full-year profit since 2019.

Rousseau assured that Air Canada will remain adaptable to changing business conditions and take advantage of opportunities. The goal moving forward is to grow, deliver on financial objectives and create long-term value for all stakeholders.

Defensive holding

Utility stocks are rate-sensitive, but rate-regulated businesses are stable. Emera operates in the regulated electric utilities industry. The $13.56 billion energy and services company provides or distributes electricity and gas to end-users in Canada, the U.S., and three Caribbean countries.

Emera is a no-brainer buy, especially for income-oriented investors. It’s a Dividend Aristocrat owing to 16 consecutive years of dividend increases. Management has an annual dividend-growth guidance of 4-5% through 2026 on a capital investment of around $9 billion within the same period.

“Our strong forward growth profile, driven by customer-focused reliability and cleaner energy investments is expected to drive our 7% and 8% average annual rate base growth over the next three years,” said Scott Balfour, president and CEO of Emera.

No-brainer choice

Air Canada’s full-year 2023 financial results are encouraging. However, it’s better to wait and see because the breakout won’t happen anytime soon. With Emera, you can invest at any time and earn quarterly passive income instantly. Also, expect higher payouts in the next few years.

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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