Better Utility Stock: Fortis vs. Emera?

Fortis stock appears to be a better utility stock buy. It offers a safer dividend that’s important to its conservative investors.

| More on:
A meter measures energy use.

Source: Getty Images

When it comes to stable dividend stocks, utility companies are often top choices for conservative investors. Among the top players in Canada’s utility sector are Fortis (TSX:FTS) and Emera (TSX:EMA), both of which provide essential services like electricity and natural gas distribution. How should you choose between the two? Let’s take a closer look to see which may be a better investment.

Fortis

Fortis is one of Canada’s largest utility companies, with operations spanning across Canada, the United States, and the Caribbean. With a portfolio that includes essential services of electricity and natural gas transmission and distribution, Fortis provides services to 3.5 million customers. Its strong presence in North America positions it as a stable, well-diversified utility.

What attracts the blue-chip stock to investors is its consistent track record of dividend growth. The company has been increasing its dividend for half a century, making it one of the most reliable dividend payers on the Toronto Stock Exchange. This strong dividend history reflects the company’s ability to generate steady cash flow from its regulated utility operations.

Fortis is also focused on growth through acquisitions. Its expansion in the U.S., such as through its purchase of ITC Holdings, has added substantial scale and diversification to its operations. This strategy allows Fortis to benefit from a growing, stable customer base and increasing demand for energy.

However, the company’s growth strategy isn’t without its challenges. Fortis has a substantial amount of debt that’s typical in utilities that borrow to grow their business. While the company’s management has shown strong financial discipline, higher interest rates and debt servicing costs could potentially put pressure on its earnings. Still, the company’s ability to earn predictable revenue and earnings from regulated operations is the kind of stability that conservative investors like.

Emera

Emera is another major Canadian utility company that provides electricity and natural gas to its customers. The utility primarily operates in Canada and the United States. It’s also investing in renewable energy, which could be a growth driver.

Emera’s strategy is to expand its renewable energy portfolio while maintaining a strong regulatory framework. The company has committed to investing in cleaner energy solutions, including solar power, aligning itself with global shifts toward decarbonization. This focus on green energy could help Emera grow in the long term, particularly as governments and businesses push for more sustainable energy solutions.

Similar to Fortis, Emera is known for its dividend payouts, although its track record is shorter than Fortis’s. Emera stock has raised its dividend for about 18 consecutive years. However, Emera seems to be facing greater challenges than Fortis, as it has experienced slower growth, resulting in a higher payout ratio. Consequently, its recent dividend increase was also much lower than Fortis’s. Emera’s last dividend hike was 1% versus Fortis’s 4.2%.

The Foolish investor takeaway: Which is a better investment?

Both Fortis and Emera stock are fairly valued so they don’t offer much margin of safety today. Fortis stock offers a lower dividend yield of about 4.1% versus Emera stock’s 5.4%. However, Fortis has a longer track record of increasing dividends and has a more diversified business. Its dividend is also safer, with a sustainable payout ratio of about 73%. Therefore, investors interested in buying utility shares should look for a dip in Fortis stock for a potential investment.

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 Kay Ng has no position in any of the stocks mentioned. The Motley Fool recommends Emera and Fortis. The Motley Fool has a disclosure policy.

More on Dividend Stocks

woman analyze data
Dividend Stocks

Secure Dividends: How to Turn $10,000 Into Reliable Passive Income

Earn a secure dividend income of over $150 every quarter by investing in these reliable Canadian dividend stocks.

Read more »

top TSX stocks to buy
Dividend Stocks

Buy the Dip: This Top TSX Dividend Stock Just Became a Must-Own

This retail dividend stock is a Canadian legend, allowing investors to get in on some serious action with a strong…

Read more »

Blocks conceptualizing Canada's Tax Free Savings Account
Dividend Stocks

How to Build a $1 Million TFSA Starting With Just $10,000

Two established, high-yield dividend stocks can help turn a small seed capital into a million-dollar TFSA.

Read more »

money cash dividends
Dividend Stocks

Here’s How Many Shares of FIE You Should Own to Get $500 in Monthly Dividends

This monthly-paying dividend ETF is simple to understand.

Read more »

sale discount best price
Dividend Stocks

Is This Correction Your Chance? Top 5 Canadian Dividend Stocks on Sale

For value, income, and long-term growth, check out these top five dividend stocks.

Read more »

Stethoscope with dollar shaped cord
Dividend Stocks

Canadian Investors: Buy WELL Health Stock Right Now

WELL Health (TSX:WELL) stock might be on the downturn right now, but a bargain for value-seeking investors for their self-directed…

Read more »

A worker gives a business presentation.
Dividend Stocks

3 No-Brainer Canadian Stocks to Buy Under $70

Investing in stocks need not require you to burn a hole in your pocket. You can invest $70 to $100…

Read more »

View of high rise corporate buildings in the financial district of Toronto, Canada
Dividend Stocks

Canadian Real Estate Stocks Plummet: Is it Time to Sell or Buy?

Real estate stocks have a lot going for the, especially dividends. But are they all a buy or due to…

Read more »