In order to improve the diversification of my portfolio across different industry sectors, I have been considering adding a utility company to my holdings. As a preliminary step in my research process, I constructed the below table to summarize some key indicators for five utility companies that meet various dividend growth, market capitalization, and financial strength considerations . For those readers unfamiliar with the utility sector in Canada, the below table might serve as a starting point for your own research.
# Years Div Gro
1-yr Div Growth
5-yr Div Growth
1-yr Rev Growth
5-yr Rev Growth
1-yr EPS Growth
5-yr EPS Growth
My primary observation from the above comparison is that there is no single dominant utility company that immediately stands out based on superior metrics across the board. Although Canadian Utilities (“CU”) has the longest standing record of annual dividend increases at 45 years, it is the most expensively priced and has seen EPS contract at a 7% compounded rate over the last 5-years. ATCO, which is CU’s parent company, has impressive dividend growth rates, but has the lowest dividend yield and earnings contracting at an even worse rate than CU. Emera (“EMA”) offers a fair 4% dividend yield and decent dividend growth rates, but their one year revenue and EPS numbers are less than stellar. Although Algonquin Power & Utilities (AQN) has the highest dividend yield, their EPS payout of over 100% and lowest credit agency rating of the bunch given me pause. Furthermore, AQN is far from cheap at 25X last year’s earnings.
This leaves me considering Fortis (“FTS”) which offers a middle of the road yield, decent dividend, revenue, and EPS growth, and the lowest payout ratio, at the cheapest valuation. The main reason why Fortis is relatively cheap is their planned USD 11.3B proposed acquisition of ITC Holdings Corp, a US-based electricity transmission operator announced in February 2016. The acquisition would be financed through debt and equity, and introduces integration risk given Fortis’s smaller comparable size evidenced by their CAD 11.2B market capitalization. As an investor, it is my preference to steer away from companies currently undertaking transformational acquisitions, as they introduce a greater degree of uncertainty concerning the combined entity’s future prospects.
With no Canadian utility company that leaps off the page at me currently, I think it is best to hold onto my capital until a clear opportunity presents itself.
Do you hold or are you interested in any of the five utility companies outlined above?