Blue Chip Utility Stocks

blue chip stockWhile the top 10 Canadian blue chip stocks did not include any utility stocks, it’s worth pointing out there are two very strong utility stocks (Emera TSE:EMAand Fortis TSE:FTS) in Canada growing through smart acquisitions.

What Are Blue Chip Stocks?

A blue chip stock is a company that is a leader in both market capitalization within its sector, its country and in its business segment. They will often have products that are well-known to everyone and established within the household. A blue chip stock will often pay a dividend and have paid a dividend consistently for many years. While it’s not required to pay a dividend or have increased the dividend, they usually have established the pattern.

Blue chip stocks are considered to be more defensive with the ability to weather stock market storms. It doesn’t mean the stock price will not go down, it means they are expected to recover due to their established business and a strong foothold.

The blue chip reference comes from understanding that a blue chip is the most valuable poker chip if you are curious about the reference. Watch this video for a great explanation.

Blue Chip Utility Stocks

Emera

Headquartered in Halifax, Nova Scotia, Emera TSE:EMA is an energy and services company primarily involved in electricity generation, electricity transmission and electricity distribution. It has $11.5bn in assets with revenue of $2.8bn. As per the company’s report, it has a 13% five year annualized total shareholder return.

Fact Sheet

  • Opportunity Score: 61%
  • Stock Price: $47.91
  • 52 Week Ratio: 74.30% ($64.52 – $50.19)
  • Market Capitalization: $9.61B
  • P/E: 14.88
  • Dividend Yield: 4.36%
  • 10 Year CAGR Dividend Growth: 6.45%
  • Sector: Utilities
  • Technicals: 
EMA - Dividend & EPS 2016
Source: Dividend Snapshot

According to its financial reports, Emera intends to have a dividend growth CAGR of 8% through 2019 which is rewarding for investors. Emera has been acquiring businesses and expending its reach. As you can see in the graph below, Emera’s reliance from Canada’s regulated utilities is about to change.

emera-ema-diversification
Source: Emera Investor Document

Below are the companies Emera operates and the location of their businesses. What I like with Emera as a Canadian investor is that Emera has already established itself in the US. Growth becomes a matter of opportunities.

emera-ema-business
Source: Emera Investor Document
emera-ema-business-locations
Source: Emera

Fortis Inc.

Newfoundland-based Fortis TSE:FTS is the country’s largest utility owner, with operations across Canada through the following provinces: Prince Edward Island, Ontario, Alberta and British Columbia. Over the past decade, Fortis has been steadily expanding its footprint to Belize, Cayman Islands and Turks and Caicos.

Fortis is one of the few that can boast about its dividend increases with 42 years of consecutive dividend increases. The only other company ahead is Canadian Utilities TSE:CU. FTS also meets the US criteria of a Dividend Aristocrats and is nearly a Dividend King.

Fact Sheet

  • Opportunity Score: 55%
  • Stock Price: $42.38
  • 52 Week Ratio: 73.40% ($35.51 – $44.87)
  • Market Capitalization: $12.00B
  • P/E: 21.85
  • Dividend Yield: 3.54%
  • 10 Year CAGR Dividend Growth: 9.03%
  • Sector: Utilities
  • Technicals: 
FTS - Dividend & EPS 2016
Source: Dividend Snapshot

Fortis has also been expanding through acquisitions south of the border. In 2014, FTS acquired UNS Energy making it the largest asset after previously acquiring CH Energy in 2013. Early in 2016, it also acquired ITC Holding Corps to further boost its US footprint. This last acquisition is still under review by regulators but progressing well without roadblocks. Once the deal closes, FTS will receive approximately 62% of its revenue from the U.S.

fortis-fts-business
Source: Fortis Investor Relations

Below is the company structure of its holdings highlighting regulated and non-regulated businesses. By adding assets, Fortis can boost its earnings and hopefully improve efficiencies in some areas for higher shareholder returns.

fortis-fts-holdings
Source: Fortis Investor Relations

Potential Blue Chip Utility Stocks

There is also one contender worth putting on your watch list with Hydro One TSE:H. Whether or not Canadian Utilities TSE:CU should be on the list is another question. The above 3 mentioned offer regulated gas and electricity in a number of provinces.

Image courtesy of David Castillo Dominici - FreeDigitalPhotos.net

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