Wednesday, June 7, 2017

Five Canadian Utility Companies with Growing Dividends 2017

In April 2016, when I was looking to add a utility company to my investment holdings, I reviewed Five Canadian Companies with Growing Dividends. After initiating a position in Emera Inc. (TSE: EMA) in October 2016, and completing my position in May 2017, it seemed like an opportune time to update my tables in order to determine if other Canadian utility companies warranted further consideration for dividend growth investors. Included below in the initial table from April 2016, and an updated version for June 2017.

April 2016

CU
ATCO
FTS
EMA
AQN
P/Etrail
32.4
29.3
15.7
17.7
25.5
Yield
3.6%
2.9%
3.7%
4.0%
4.7%
EPS Payout
76.4%
74.0%
38.4%
63.3%
104.7%
# Years Div Gro
45
23
42
9
6
1-yr Div Growth
10.2%
15.2%
10.3%
18.8%
10.0%
5-yr Div Growth
10.1%
14.9%
5.6%
7.9%
9.9%
1-yr Rev Growth
-9.3%
-9.2%
24.1%
-3.4%
9.1%
5-yr Rev Growth
3.8%
3.2%
12.6%
11.8%
41.5%
1-yr EPS Growth
-55.9%
-63.5%
85.0%
-3.9%
45.0%
5-yr EPS Growth
-7.0%
-11.5%
10.2%
10.4%
8.8%
S&P Rating
A/Neg
A/Neg
A-/Neg
BBB+/Neg
BBB/Neg

June 2017

CU
ATCO
FTS
EMA
AQN
P/Etrail
18.7
17.6
22.4
18.2
39.4
Yield
3.5%
2.6%
3.5%
4.3%
4.5%
EPS Payout
53.8%
41.0%
51.5%
51.8%
186.3%
# Years Div Gro
46
24
43
10
7
1-yr Div Growth
10.0%
14.9%
6.7%
10.0%
10.0%
5-yr Div Growth
10.1%
14.9%
5.6%
8.7%
8.9%
1-yr Rev Growth
4.30%
-0,7%
7.4%
53.5%
7.1%
5-yr Rev Growth
2.6%
0.3%
20.1%
23.0%
52.4%
1-yr EPS Growth
26.6%
7.9%
1.6%
-20.3%
0.0%
5-yr EPS Growth
1.7%
-3.0%
6.90%
12.2%
29.2%
S&P Rating
A/Neg
A/Neg
A-/Sta
BBB+/Neg
BBB/Sta


Here are some quick observations about each of the companies.

- A material improvement in earnings makes Canadian Utilities (TSE: CU) look cheaper from a valuation perspective and decreased their payout ratio. Although the dividend growth remains consistent around 10%, the company will ultimately have to increase their revenues and earnings in order to maintain the impressive dividend growth record.
- Atco (TSE ACO.X) is Canadian Utilities' parent company, and their earnings improvement also led to a cheaper valuation and lower payout ratio. Sacrificing a lower current yield in favor of 15% dividend growth might lead an investor to favor Atco over Canadian Utilities.
- Fortis (TSE: FTS) looks to successfully integrate their material US acquisition in order to continue their long history of dividend growth. Over the past year, slower EPS growth has led to the company appearing a tad overvalued based on their historic P/E multiple.
- Emera (TSE: EMA) also looks to continue successful integration efforts in order to support revenue growth. The company's P/E multiple has expanded and investors expect management to announce another 10% dividend raise this summer.
- Algonquin Power and Utilities (TSE: AQN) continues to perform strongly as their valuation grows in response to an impressive record of revenue and EPS growth. Note that using EPS in the P/E multiple and payout ratio might be ill-advised as some sort of free cash flow measure is likely more apt.

Although none of the above Canadian utility companies leap off the page at me, I think they are priced fairly in the context of the overvalued Canadian market.


Do you hold or are you interested in any of the five utility companies outlined above? 

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