A Canadian utility stock I don’t discuss enough (but probably should), Emera (TSX: EMA) is a stock with a chart that most investors would certainly be okay with owning for a significant period of time.
The utility giant has continued to see strong growth, as Emera continues to focus on expanding into new markets (most notably Florida), and capital flows continue to remain positive for the company, which was recently listed on the NYSE in May.
The question moving forward is whether this is a utility stock that could be due for a new all-time high. With the company’s previous high of around $65 per share now in range, the question is whether this stock is a buy (headed to new all-time highs) or if investors should take profits.
Let’s dive in.
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Strong fundamentals
One of the things I like most about the utility sector is the sheer defensive nature of this sector. We all need electricity and heat, and Emera is a key player in this regard (and now that it’s a dual-listed stock, investors from all over North America can buy).
But in the case of Emera, I think the company’s fundamentals really stand out as the key reason why this stock has rallied in the way it has. Aside from the company’s durable and foundationally strong dividend yield of 4.7%, there’s a lot to like about the company’s capital investment plan. Emera is set to put $20 billion to work over the next four years, targeting grid modernization and infrastructure growth in key high-performing markets such as Florida.
We’ll have to see how Emera’s earnings growth trajectory shifts over this time frame. But looking at the company’s most recent results, it’s clear that the company’s management team is doing something right. With overall earnings per share growth expected to come in at the 5% to 7% range for the coming years (and regulated utility investments generally perceived to return around 8%), I think there’s still upside with Emera at its current stock price. For long-term investors, this is a company I think is certainly worth considering.
So, is this a stock worth buying under $65?
I think Emera is one of those stocks that’s going to continue to demand a premium in today’s market. The defensiveness this company provides, in addition to its robust yield (and solid payout ratio to boot), makes this a name I’d personally consider below the $65 level. I think new all-time highs are in order, but investors may need to be patient with this name.
I’m going to keep this stock on my watch list and be patient. I think anything can happen in this market, and most investors would likely agree.
But for those with a long-term investing time horizon, dollar cost averaging into such a name may make sense. Emera looks like a solid pick in this current market, and it’s one I’d consider a contender for a top portfolio holding right now.
