emera

When picking high dividend stocks, we continue to recommend that you look beyond yield (dividend rate divided by share price). Instead, focus on high-quality companies with long histories of rising payouts, such as these four utilities (including Canadian Utilities, see box on page 74). Their steady cash flows are helping them maintain or raise their dividends, and invest in new growth projects. FORTIS INC. $32 (Toronto symbol FTS; Conservative Growth Portfolio, Utilities sector; Shares outstanding: 196.8 million; Market cap: $6.3 billion; Price-to-sales ratio: 1.5; Dividend yield: 3.6%; TSINetwork Rating: Above Average; www.fortisinc.com) is the main supplier of electrical power in Newfoundland and Prince Edward Island. It also operates power plants in other parts of Canada, as well as the U.S., Belize and the Cayman Islands. In addition, Fortis operates hotels and other businesses in Canada. The company has been working to lower its reliance on Atlantic Canada. In May 2004, it bought regulated electrical utilities in Alberta and B.C. for $1.5 billion in cash and stock. In May 2007, it paid $3.7 billion for the regulated gas-distribution business of Terasen Inc. (now called FortisBC Energy), which has 940,000 customers in B.C. Fortis issued $1.15 billion of shares to help pay for this purchase....

ALGONQUIN POWER & UTILITIES $5.85 (Toronto symbol AQN; Shares outstanding: 94.3 million; Market cap: $672.3 million; TSINetwork Rating: Extra Risk; Dividend yield: 4.4%; www.algonquinpower.com) is buying the 49.999% of California Pacific Electric Company (CPEC) it doesn’t own from Emera Inc. CPEC sells power to 47,000 customers in Lake Tahoe, California. Emera will receive Algonquin shares for its California Pacific stake. That will increase its ownership of Algonquin from 15% to 25%. Emera and Algonquin are also forming a 50/50 joint venture called Northeast Wind. This new business will team up with First Wind Holdings LLC to build and operate wind-energy projects in Maine, Vermont and New York State....

This week’s election of a majority Conservative government is a positive development for most of the stocks we recommend. That’s mainly because next year’s cut in the corporate tax rate will proceed as planned. As well, the Conservatives will not impose onerous new carbon taxes or environmental regulations on oil-sands operators such as Suncor (see below). Emera should also benefit, as Ottawa will continue to guarantee loans related to its new power plant in Labrador. SUNCOR ENERGY INC., $40.26, Toronto symbol SU, merged with Petro-Canada in 2009 to become Canada’s largest integrated-oil company. In the three months ended March 31, 2011, Suncor’s earnings rose 32.0%, to $1.0 billion from $779 million a year earlier. Earnings per share rose 30.0%, to $0.65 from $0.50. If you exclude unusual items, such as gains and losses on asset sales, Suncor’s earnings per share jumped 291.7%, to $0.94 from $0.24. On this basis, the latest earnings beat the consensus estimate of $0.80 a share....

ALGONQUIN POWER & UTILITIES CORP. $5.21 (Toronto symbol AQN; Shares outstanding: 95.1 million; Market cap: $495.5 million; TSINetwork Rating: Extra Risk; Dividend yield: 5.0%; www.algonquinpower.com) holds interests in 44 hydroelectric plants in Canada and the northeastern U.S., as well as 12 thermal-energy facilities. Wholly owned Liberty Water Co. owns 19 U.S. water-distribution and waste-water plants. The company also has a partnership with Emera Inc. (Toronto symbol EMA), which is a recommendation of The Successful Investor, our affiliated publication. Under this partnership, called Liberty Energy Utilities, Algonquin and Emera bought the assets of California-based power generator NV Energy in January 2011. NV Energy serves 47,000 customers in the Lake Tahoe region. Under the deal, Emera also bought a 9.9% stake in Algonquin. The partners have also agreed to buy two other utilities that sell electricity and natural gas to 125,000 customers in New Hampshire....

Stocks in the Utilities sector usually appeal mainly to conservative and income-seeking investors. That’s because these firms’ operations (such as power plants and pipelines) generate steady cash flows that help them pay above-average dividends. However, some utilities also offer opportunities for growth. Emera is good example. In the past few years, the company has aggressively expanded outside its home province of Nova Scotia. These investments should pay off for years to come. EMERA INC. $31 (Toronto symbol EMA; Income Portfolio, Utilities sector; Shares outstanding: 114.7 million; Market cap: $3.6 billion; Price-to-sales ratio: 1.3; Dividend yield: 4.2%; TSINetwork Rating: Average; www.emera.com) gets 75% of its revenue and 65% of its earnings from Nova Scotia Power Inc., which is Nova Scotia’s main electricity supplier....

EMERA INC. $31 (www.emera.com) has raised its stake in Light & Power Holdings to 79.7% from 38.3%. Light & Power is the sole electricity supplier in Barbados. Emera paid roughly $91 million for the extra shares. That’s equal to 60% of the $151.5 million, or $1.31 a share, that Emera earned in the nine months ended September 30, 2010. Investments like this cut Emera’s reliance on Nova Scotia, which accounts for 70% of its revenue. Best Buy. TORONTO-DOMINION BANK $78 (www.td.com) will open 300 of its branches, or one-quarter of the total, on Sundays. Longer operating hours should help it attract more customers. Buy. TRANSALTA CORP. $21 (www.transalta.com) is building more wind farms as new environmental regulations force it to phase out its coal-fired power power plants. However, ballooning budget deficits could prompt governments to cut wind-power subsidies. Sell.

EMERA INC. $33 (Toronto symbol EMA; Income Portfolio, Utilities sector; Shares outstanding: 114.0 million; Market cap: $3.8 billion; Price-to-sales ratio: 2.4; Dividend yield: 3.9%; TSINetwork Rating: Average; www.emera.com) has completed its purchase of California Pacific Electric Co., which generates and distributes electricity to 47,000 customers in Lake Tahoe, California. Emera bought this business through a 50/50 partnership with Algonquin Power & Utilities Corp. (Toronto symbol AQN), which holds interests in 45 renewable-power facilities in Canada and the northeastern U.S., as well as 14 thermal-energy plants and 19 water-distribution and waste-water facilities. When the partners announced the purchase in April 2009, the price was $116 million U.S. However, the slow pace of regulatory approvals pushed up the final price to $132 million U.S....

TORONTO-DOMINION BANK, $72.23, Toronto symbol TD, fell 4% this week, even though the bank reported higher revenue and earnings in its 2010 fiscal year, which ended October 31, 2010. Revenue rose 9.6%, to $19.6 billion from $17.9 billion in fiscal 2009. Earnings rose 10.9%, to $5.2 billion from $4.7 billion. Earnings per share rose 7.9%, to $5.77 from $5.35, on more shares outstanding. These figures exclude unusual items, such as costs to integrate the recently purchased South Financial Group, Inc., which operates bank branches in Florida and the Carolinas. On this basis, the latest earnings fell short of the consensus estimate of $5.81 a share. The bank continues to set aside less money to cover bad loans. That’s the main reason why earnings at TD’s retail-banking business rose 53.7% in the U.S. and 25.2% in Canada. Earnings from wealth management rose 7.4%. However, earnings from TD’s trading business fell 23.8%, due to lower trading volumes, a drop in underwriting activity, and fewer gains from its investment portfolio....

ALGONQUIN POWER & UTILITIES CORP. $4.88 (Toronto symbol AQN; Shares outstanding: 95.1 million; Market cap: $464.1 million; TSINetwork Rating: Extra Risk; Dividend yield: 4.9%; www.algonquinpower.com) holds interests in 47 hydroelectric plants in Canada and the northeastern U.S., as well as 14 thermal-energy facilities. Wholly owned Liberty Water Co. owns 19 U.S. water-distribution and waste-water plants. The company also has a partnership with Emera Inc. (Toronto symbol EMA), which is a recommendation of The Successful Investor, our affiliated publication. Under this partnership, called Liberty Energy Utilities, Algonquin and Emera plan to buy the assets of California-based electricity generator NV Energy, which serves 47,000 customers in the Lake Tahoe region. When regulators approve the deal, likely in early 2011, Emera will also pay $30.9 million for a 9.9% stake in Algonquin. Algonquin is building its 26.4-megawatt Red Lily wind farm in Saskatchewan. The company expects the $67.7-million project to start generating power in early 2011. Algonquin has already signed an agreement with SaskPower, the province’s main electricity supplier, to buy Red Lily’s power for 25 years....

EMERA INC., $31.13, Toronto symbol EMA, is Nova Scotia’s main electricity supplier. This week, the company agreed to participate in a major new hydroelectric project on the Churchill River in Labrador. Under the terms of the deal, Nalcor Energy, which is owned by the Newfoundland government, will build a new power plant at Muskrat Falls. Emera and Nalcor will then form a joint venture that will transmit the plant’s power to the island of Newfoundland. Emera will pay $600 million for a 29% stake in this new regulated transmission utility....