Util­ity stock chal­lenge: For­tis vs. Emera

The Globe and Mail (Prairie Edition) - - GLOBE INVESTOR - ROB CAR­RICK

Aris­ing-rate world is a desert for util­ity stocks, but let’s say you take the long view and value their con­sis­tent div­i­dend growth.

Two stal­warts in the util­ity sec­tor are Emera Inc. (EMA-T) and For­tis Corp. (FTS-T) – which one looks like the bet­ter in­vest­ment right now?

A re­cent anal­y­sis by In­comeRe­search.ca may help in your re­search about which is most suit­able for your own port­fo­lio.

It’s worth not­ing off the top th­ese stocks have near iden­ti­cal five-year to­tal re­turns – 37.6 per cent for Emera and 36.9 per cent for For­tis.

In the past 12 months, Emera has fallen 14 per cent and For­tis has de­clined 6.1 per cent.

Yield-wise, Emera was at 5.5 per cent in early Septem­ber, while For­tis was just be­low 4 per cent.

Util­ity stocks are ob­vi­ously out of favour as in­ter­est rate rise, but they re­tain some ap­peal for the in­vestor who ap­pre­ci­ates a con­sis­tently ris­ing div­i­dend. Globein­vestor.com data shows five-year an­nu­al­ized div­i­dend growth of 9.4 per cent for Emera and 6.3 per cent for For­tis.

Look­ing ahead, In­comeRe­search.ca forecasts 6 per cent growth for For­tis, which has boosted its div­i­dend for 44 straight years.

Emera had been fore­cast­ing 8 per cent div­i­dend growth, but re­duced that to 4 to 5 per cent in or­der to re­tain funds for fu­ture projects.

In­comeRe­search.ca forecasts For­tis’s div­i­dend pay­out ra­tio at 61 per cent for 2018 and rates the stock low risk.

“Sub­stan­tially all of For­tis’s as­sets are low-risk, reg­u­lated util­i­ties and long-term con­tracted en­ergy in­fra­struc­ture,” it says.

“No sin­gle reg­u­la­tory ju­ris­dic­tion com­prises more than onethird of to­tal as­sets.” Emera’s pay­out ra­tio is fore­cast at 87 per cent and the stock gets a rat­ing of medium risk.

Emera’s higher 5.5-per cent yield will have ob­vi­ous ap­peal at a time when five-year Gov­ern­ment of Canada bonds yield at about 2.2 per cent.

But For­tis seems to of­fer the best over­all bal­ance – de­cent yield, an im­pres­sive his­tory of div­i­dend growth and, ac­cord­ing to In­comeRe­search.ca, lower risk.

In­comeRe­search.ca says both stocks of­fer sim­i­lar po­ten­tial for price ap­pre­ci­a­tion.

The 12-month price tar­gets for For­tis and Emera are $47 and $45, re­spec­tively, which are roughly 10 per cent above early Septem­ber lev­els in both cases.

Emera had been fore­cast­ing 8 per cent div­i­dend growth, but re­duced that to 4 to 5 per cent in or­der to re­tain funds for fu­ture projects.

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