2023-09-15 09:00:00 ET
Fortis ( TSX:FTS ) and Emera ( TSX:EMA ) are both Canadian utility stocks with domestic and international operations. The share prices are off the 2023 highs, and investors are wondering if FTS stock or EMA stock are now oversold and good to buy for a self-directed Tax-Free Savings Account (TFSA) or Registered Retirement Savings Plan (RRSP) portfolio.
Fortis owns $64 billion in assets located across Canada, the United States, and the Caribbean. The businesses include power-generation facilities, electricity transmission networks, and natural gas distribution utilities.
Fortis gets nearly all of its revenue from rate-regulated operations. This makes cash flow relatively predictable and reliable, which is why Fortis is a popular pick with dividend investors.
Fortis grows through a combination of acquisitions and development projects. The current $22.3 billion capital program is expected to increase the rate base from $34.1 billion to $46.1 billion over five years. The resulting boost in cash flow should support planned dividend increases of 4-6% per year through at least 2027.
Fortis has other projects under consideration that could extend the timeline or increase the size of the distribution increases. Fortis raised the dividend in each of the past 49 years. At the current share price near $55.50, the stock provides a 4% dividend yield.
The drop in the stock from $60 earlier this year gives investors a chance to buy Fortis on a nice dip.
Emera is similar to Fortis in that its utilities are also located in Canada, the United States, and the Caribbean. The company gets most of its revenue from electric and natural gas utilities. Households and businesses need these essential services regardless of the state of the economy, so Emera should be good stock to own if you think the economy is headed for a recession.
Emera has about $38 billion in assets. The company is on track to invest $2.8 billion in capital in 2023, as part of its roughly $8 billion capital program through 2025. As new assets are completed and go into service, the company expects to see cash flow rise enough to support targeted annual dividend increases of 4-5% over the next two years.
At the time of writing, Emera trades near $51.50 compared to $59 in May. The current dividend yield is 5.4%.
Is one a better pick?
Emera appears more oversold and offers income investors a higher yield right now. Fortis, however, has a longer dividend-growth outlook based on its larger capital program. At the current prices, I would probably split a new investment between the two stocks.
The Motley Fool recommends Emera and Fortis. The Motley Fool has a disclosure policy . Fool contributor Andrew Walker has no position in any stock mentioned.