The four Utilities discussed in this article are all included in the Canadian Dividend All-Stars list and as such have a history of increasing their dividends for at least 5 years in a row. The stocks are also trading at relatively attractive valuations, though they may not all be undervalued. Readers should note that all figures are referenced in Canadian dollars unless reference is made to the US ticker symbol or the contrary is indicated.
Canadian Utilities (OTCPK:CDUAF) offers a dividend yield of around 3.9% and has increased its dividend every year for the past 45 years. Canadian Utilities currently has a payout ratio of around 73% and the stocks volatility is relatively low comparison to the broader market with a Beta of 0.51.
The company is impacted by movements in oil & gas prices but has proven to be more resilient to adverse movements in these prices, as a result of its diversified business model, than some of its peers. The company's continued investment into its regulated energy business will also further support the company's long term prospects and provide a stable source of earnings. It is expected to invest roughly $2 billion in 2017, with the most thereof going towards the regulated energy business or long-term contracted capital assets in Canada and Australia.
Canadian Utilities is currently trading at a p/e ratio of 24.62 which is above its 5-year average p/e ratio of 20.04. Its forward p/e ratio at 16.58 is, however, relatively low and its price to book value at 2.1 is below its 5-year average p/b of 2.31. Simplywall.st's DCF model in the infographic below also indicates that Canadian Utilities seems somewhat undervalued at present levels.
Fortis (NYSE:FTS) is another top high yielding Canadian utility offering a dividend yield around 3.76% and having increased its dividend every year for 43 years. The payout ratio of close to 60% is also relatively low in comparison to that of a number of its Canadian peers whilst volatility is also extremely low in comparison to the broader market and that of the utilities sector. Fortis has a 5-year average Beta of 0.451 compared to an average of about 0.7 for the electric utilities sector.
Fortis management further remains committed to increasing dividend payments and has indicated that they expect 6% annual dividend growth through 2021. The acquisition of ITC Holdings Corp. late last year will further enhance long term growth prospects in addition to the expanded geographical diversification.
Fortis is trading at a p/e ratio of 22.81 which is above its 5-year average of 20.46. Its current price to book value at 1.33 is below that of its 5-year average and the average price to book value for the broader utilities industry. The infographic below further depicts FTSs valuation relative to the market. Fortis does not seem undervalued at present levels but remains a good stock for long term investors.
Emera (OTCPK:EMRAF) offers a dividend yield of around 4.59% and has increased its dividend every year for 10 years. Emera envisages a dividend growth rate of at least 8% per annum trough 2020, it has also often increased its dividend well above the targeted level. The increasing dividend is also supported by Emera's continued earnings growth including an almost 23% YoY increase in EPS for 2016 on an adjusted basis.
Emera's acquisition of TECO Energy last year will likely also enhance its long term growth prospects with management expecting it to be 10% accretive to EPS by 2019. The acquisition also increases earnings certainty by increasing earnings from its rate regulated business to about 85% of its adjusted net income.
Emera seems fairly valued at present levels and is trading around 7.38 times cash flow which is below its 5-year average price-to-cash-flow-ratio of 9.02 whilst its p/e ratio is above its 5-year average. The stock's price to book value at 1.59 is also below that of its 5-year average price to book value of 1.93.
Algonquin Power & Utilities
Algonquin Power & Utilities (NYSE:AQN) offers a dividend yield around 5.19% and has increased its dividend every year for 6 years. Management is also more than 15% EBITDA growth and 10% compounded annual dividend growth making AQN a good long term dividend growth stock.
Algonquin's ambitious growth targets are supported by its $9.7 billion of investment opportunities identified by the company through 2021. The company reported a 29% YoY increase in adjusted EPS in its most recent quarter and increased its dividend by 10%. Readers should note that the dividend is declared in USD.
The stock is currently trading at a p/e ratio of 30.32 which is below its 5-year average p/e ratio of 34.09. The p/e ratio may seem excessively high for some readers but the high p/e ratio is a natural consequence of high growth anticipations. Readers interested in a more detailed discussion of Algonquin should read George Fisher's article on this promising utility.
I consider Canadian Utilities and Fortis safer investments and the other two utilities for dividend growth. Overall I favour Fortis for its good geographic diversification and AQN for its significant growth potential.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
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