Fortis (TSX: FTS) and Emera (TSX: EMA) have enjoyed big rallies over the past year. Investors who missed the rebound are wondering if FTS stock or EMA stock is still undervalued and good to buy for a self-directed Tax-Free Savings Account (TFSA) or Registered Retirement Savings Plan (RRSP) portfolio.
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Fortis
Fortis trades near $65 per share at the time of writing. The stock is up about 18% in the past 12 months and has fully recovered the losses it incurred in 2022 when it slipped from $64 to as low as $50 per share.
Fortis and other utilities took a hit when the Bank of Canada and the U.S. Federal Reserve started to raise interest rates to get inflation under control. The stock’s solid rally over the past year coincided with the start and continuation of rate cuts in both countries.
Fortis operates $75 billion in utility assets across Canada, the United States, and the Caribbean. The company uses debt to fund part of its growth program, which includes projects that can cost billions of dollars and sometimes take years to complete. The steep jump in borrowing costs that occurred put utility investors on edge. Elevated debt expenses eat into profits and can reduce cash available for distributions while potentially forcing some projects to be postponed or shelved.
Fortis is working on a $26 billion capital program that will raise the rate base from $39 billion in 2024 to $53 billion in 2029. The extra revenue and earnings from the new assets should support planned annual dividend increases of 4% to 6% over five years. Fortis raised the dividend in each of the past 51 years.
Emera
Emera is another utility company based in eastern Canada with assets primarily located in the domestic market and the United States.
The stock is up 27% in the past year, currently trading near $60.50 per share. Emera tumbled with Fortis as interest rates rose. The stock slipped from $64 in 2022 to as low as $44 in 2023 and again last year before staging a big recovery. Interest rate changes caused most of the move in this situation, although Emera had some weak quarters that contributed to the rout.
Things are looking better for 2025. Emera reported first-quarter (Q1) 2025 adjusted net income of $379 million compared to $216 million in the same quarter in 2024. The company’s electric utility businesses in Florida led the recovery, with adjusted net income in the group jumping to $164 million from $85 million. Canadian electric utility adjusted net income rose from $87 million to $121 million.
Emera says it is on track to deliver average adjusted earnings per share growth of 5% to 7% through 2027. This should support steady dividend increases. Investors who buy the stock at the current price can get a dividend yield of 4.8%.
Is one a better pick?
Income investors might decide to go with Emera for the higher dividend yield. The $18 billion market cap also makes Emera small enough that it could potentially be a takeover target if the utility space sees a wave of consolidation. Fortis is larger, with a market cap of nearly $33 billion, but it might also become a target for a big alternative asset investment player looking for reliable and growing cash flow.
Both stocks pay attractive dividends that should continue to grow. I would probably split a new investment between them at the current share prices.
