Emera Inc (EMA.TO)

(Preferreds A.) The company is in very good shape and in the midst of doing a big transaction in the US, which is good. He is presuming that this preferred is a reset, because they came out as attractive yields, but were going down as the resets took place. He owns the common shares. (See Top Picks.)

This is a utility whose main holding is Nova Scotia Power. They are in the process of trying to buy a US energy company in order to have a footprint in the US. He is not so sure about that. Likes the idea that they want to grow, but the problem for him is that they are buying it with $0.75 dollars. He is not sure it is time to be putting money into the US.

How do Emera Instalment Receipts convert to shares? A fairly complex investment, but pretty advantageous. The company did an acquisition, but they don’t have to pay for it until it closes, and they want to make sure they have the financing in place. You put up 33% of the total value today, and get paid the yield on the full value. If the instalment is worth $1000, you have to put up $333 today, but you get the 4% yield on $1000. That equates to about a 12% yield until the deal closes. However, you have to come up with the money when the position closes.

He bought the financing EMA-T did in order to buy some electrical assets in the US. They have a good track record of growing their dividend over time. The risk is that these transactions incur too much debt. When Interest rates start to rise, will their yields be competitive with current rates. He prefers this to FTS-T.

Acquiring US Teco Energy for $10 billion, a utility with operations in Florida and New Mexico. It will probably take the best part of a year to get all the regulatory approvals, but is a game changer for the company. Increases their size dramatically. They previously had a target to increase the dividend at 8% a year and this deal will allow them to at least do that if not better. If the transaction goes through, this will be 80% regulated, so predictability of the earnings will be that much better. Dividend yield of 4.41%.

Longer term this makes sense. They are interest rate sensitive and interest rates are not going up in a rush in Canada. It is up 20% in the last 52 weeks, but this is not what will happen in the next year. A 6-8% return including the dividend is to be expected.

Seasonally this is not the best time for utilities. They tend to perform well from July into the beginning of October, so we are getting towards the tail end. It also has a bump towards the end of the year. We are coming to a period where it is typically better, from a growth perspective, to be in higher beta sectors. Chart shows this is in fairly good shape. Recently made an acquisition which is going to help them with their cash ratio payout. There are a lot of positive, accretive things happening.

Just did a big acquisition. Did it by prescription receipts, so there is an overhang. This will take a few months digesting for a while. For him, there is not enough growth for the valuation. Dividend yield of 4.6%.

Recently just did a great acquisition in the US, and are going more to being a regulated utility, low risk to earnings. They are going to be about 70% pro forma in the US going forward and will be less volatile. Recently financed this with a convertible debenture that has a very attractive term of 4% yield with 33% money down, effectively a 12% yield going forward, until the deal is closed. If you can buy some of that, that is an interesting way to get into the equity.

A potentially good purchase for retail investors looking for yield. Price momentum is very good. Utilities in general tend to be defensive in a down market, so it has held up particularly well. Very stable. Not cheap on an EBITDA basis and carries a fair bit of debt, which is true of all these types of utility companies. Dividend yield of 4.3%.

Emera (EMA-T) or Fortis (FTS-T)? He owns both. This one seems to be showing a little more get up and go. They just made another acquisition and the stock performed exceedingly well. Both of them are good stocks to own.

If you are in this for yield, you should be safe. If you are in it for growth, you could lighten your holdings. He wouldn’t be opposed to taking a profit and redeploying the assets. This is a safe, stable company.

Just blew away a quarter which was fantastic. Raised their dividend with a 21% increase. This is in a great sector. Had a little bit of a break out recently. Fantastic business and really well run.

Trading about 2 times book value, about as high as it has ever got. He calculates it as just about par. There is something to be said for dividends that are going up and that will hold the stock up as well as it would other companies. You don’t get killed on the stock.

(A Top Pick April 16/15. Up 11.75%.) He continues to buy this for new clients. On a “go forward” basis, he wouldn’t expect the same returns that he has seen over the last year.