Utility investors suddenly have competition from something they haven’t worried about for years. Right now, government bonds are paying real income again.
Canada’s benchmark 10-year government-bond yield recently hovered around 4%. When an investor can lock in something close to that without accepting stock-market risk, a utility yielding 3% or 4% has to provide another reason to own it.
That can pressure utility share prices even when the electrical systems underneath them keep growing. For a 10-year investor, that tension can become useful.
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Why bonds hurt utilities
Utilities are unusually sensitive to interest rates for two reasons. First, they’re capital intensive. Building transmission lines, substations, power plants, batteries, and gas infrastructure requires billions of dollars. Utilities often borrow part of that money. Higher rates make future projects more expensive to finance.
Second, utilities compete directly with bonds for income investors. If a risk-free government yield climbs, investors generally demand more return from utility stocks too. Share prices can fall until expected returns look attractive again. The question then becomes whether the company can grow earnings fast enough to offset the financing pressure.
A different utility
In that case, I’d look at Emera (TSX: EMA). Emera owns regulated electric and gas utilities, with major operations including Tampa Electric in Florida and Nova Scotia Power. Regulated utilities invest in infrastructure, then seek approval to recover costs and earn an allowed return through customer rates.
That creates much more predictable revenue than a commodity producer or technology company. Emera plans approximately $4 billion of capital spending in 2026. It invested more than $1.7 billion during the first half alone.
The company expects those investments to support adjusted earnings-per-share growth of 5% to 7% annually through 2030. That’s the growth side of the utility equation.
Into earnings
Second-quarter adjusted earnings per share (EPS) hit $0.69. Management said full-year 2026 adjusted EPS growth was positioned to come in above its normal 5% to 7% target range.
Meanwhile, Emera pays $0.73 per share quarterly, or $2.93 annually. At $67.93 at writing, that’s a yield around 4.3%. That puts the starting income much closer to current government-bond yields than many utilities offer.
The difference is that Emera’s dividend can potentially grow over the next decade. A bond coupon generally doesn’t. That’s why I’d still include utilities among diversified Canadian dividend stocks for long-term income.
Considerations
A 4.3% dividend isn’t automatically better than a 4% government bond. The stock can fall. The dividend can be cut. Emera also carries substantial debt because regulated utilities finance enormous asset bases. Persistently high borrowing costs could make new projects less attractive or slow earnings growth.
Regulators also need to approve rates that allow the company to recover its investments. That creates execution and political risk, especially when electricity bills are already painful for customers. I’d therefore build the position gradually when buying stocks in Canada.
Bottom line
Higher bond yields are making utility investors work harder. But I don’t see that as entirely bad news. Emera currently offers a roughly 4.3% yield while investing billions in regulated infrastructure and targeting 5% to 7% annual adjusted EPS growth through 2030.
Rates may decide what investors pay for the stock next month. Yet the assets Emera builds today will decide what the business can earn a decade from now.
