In the past few years, Emera has used acquisitions to cut its reliance on Atlantic Canada, its home region. Those new operations include U.S. power utility Teco, purchased in 2016.
Expanding by acquisition adds risk. However, the revenue stream from Emera’s new businesses is dependable and will help it to pay down debt. What’s more, the elimination of overlapping operations will free up cash for dividends. In fact, the company has already announced multi-year dividend increases thanks to its latest purchase.
EMERA INC. $45 (Toronto symbol EMA; Income-Growth Payer Portfolio, Utilities sector; Shares outstanding: 210.0 million; Market cap: $9.5 billion; Dividend yield: 4.6%; Dividend Sustainability Rating: Highest; www.emera. com) owns 100% of Nova Scotia Power, that province’s main electricity supplier. It also owns power utilities in the U.S. and the Caribbean.
The company’s revenue rose 42.8%, from $2.1 billion in 2012 to $2.9 billion in 2014. That’s partly due to the acquisition of power plants in New England. Revenue then fell to $2.8 billion in 2015 due to lower revenue from its electricity-trading division.
Excluding unusual items, earnings jumped 43.2%, from $230.5 million in 2012 to $330.0 million in 2015. Due to more shares outstanding, per-share earnings rose at a slower rate of 22.2%, from $1.85 to $2.26.
On July 1, 2016, the company completed its acquisition of Teco Energy for $13.9 billion.
That firm supplies electricity and natural gas to 1.05 million customers in Tampa Bay, Florida.A separate subsidiary distributes gas to 510,000 customers in New Mexico.
Thanks to this purchase, Emera’s revenue in 2016 gained 53.3%, to $4.3 billion. Excluding costs to integrate these new businesses, it earned $475.0 million, or $2.77 a share.
With this acquisition, the company now gets 62% of its earnings from the U.S., followed by Canada (30%) and the Caribbean (4%). The remaining 4% comes from energy trading and other operations.
Regulated operations now supply 90% of Emera’s earnings. Thanks to steady cash flows from these businesses, the company plans to raise its annual dividend rate by 8% each year through 2020. The current rate of $2.09 a share yields a high 4.6%.
The company aims to pay out 70% to 75% of its earnings before unusual items as dividends. In 2016, dividends equalled 68.2% of its adjusted earnings.
Emera also continues to make progress with its $600 million Labrador Island Link project. It will transmit power from a new hydroelectric facility at Muskrat Falls, Labrador, to the island of Newfoundland.
The company owns 59% of this project, while Nalcor (Newfoundland’s government-owned power company) owns the remaining 41% interest in Muskrat Falls.
Emera also continues to work on its 100%-owned Maritime Link project; it will transmit Muskrat Falls’ electricity from the island of Newfoundland to Nova Scotia through an undersea cable. The company will spend $1.6 billion.
Both of these projects should start up in 2018. That will help Emera comply with Nova Scotia’s phase-out of coal-fired power plants by 2030.
Emera’s earnings should improve to $2.98 a share in 2017, and the stock trades at a reasonable 15.1 times that forecast.
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