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What are we looking for?

A review of the recently ended third quarter shows that the best performing sectors, in both Canadian and U.S. markets, were those that are particularly interest-rate sensitive, such as utilities (up 9 per cent and 6 per cent in the quarter, respectively) and real estate (up 7.4 per cent and 4.9 per cent).

Today we focus on utilities. The sector has benefited from the recent decline in long-term interest rates and the market appetite for yielding assets, and it operates largely under the umbrella of long-term contracts. Hence, in our screen we look for defensive utility companies that have an attractive history of dividend growth.

The screen

We screened the North American utility stock universe by focusing on the following criteria:

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  • Market capitalization greater than $5-billion;
  • A low beta – a stock with a beta less than one is considered less volatile than the market and ultimately giving companies a defensive edge;
  • Three-month growth in net operating profit after tax (NOPAT). A measure of operating efficiency that excludes the cost and tax benefits of debt financing by simply focusing on the company’s core operations net of taxes;
  • A current economic performance index (EPI) equal to or greater than one – this ratio is the return on capital to cost of capital. It gives shareholders an idea of how much return the company is generating on each dollar spent; an EPI of one would indicate that return of capital are just sufficient to cover the costs of capital.
  • Dividend yield greater than 2 per cent and dividend growth over one-, two- and four-year periods;
  • A positive 12-month change in the economic value-added (EVA) metric – a positive figure shows us that the company’s profit is increasing at a faster and greater pace than the costs of capital. The EVA is the economic profit generated by the company and is calculated as the NOPAT minus capital expenses.

For informational purposes, we have also included recent stock price and one-year return. Please note that some ratios may be reported at the end of the previous quarter.

More about Inovestor

Inovestor for Advisors is a fundamental-analysis research platform specializing in the economic value-added (EVA) approach. With Inovestor, advisers can quickly identify attractive investment opportunities, outsource their stock picking by using model portfolios and easily communicate investment decisions with clients through client-friendly reports. In addition, Inovestor allows users to create personalized filters, build custom portfolios and carry out in-depth analysis on more than 13,000 companies (Canadian stocks, U.S. stocks and American depositary receipts).

What we found

Brookfield Infrastructure Partners LP, headquartered in Toronto, has the highest dividend yield on our list, at 4.6 per cent, as well as the highest EPI, indicating a greater ability to cover its costs and potentially raise its dividend.

The largest company, with a market cap of more than US$70-billion, is Charlotte, N.C.-based Duke Energy Corp., a power provider that services millions of clients across six states. Duke is currently yielding 4.2 per cent and has increased its dividend annually for the past 15 years.

Atco Ltd., the smallest company, is a Calgary-based diversified holding company with investments in energy infrastructure, transportation and commercial real estate. Atco has increased its dividend every year for the past 26 years. Note that Atco managed to generate the largest NOPAT growth on our list.

Investors are advised to do further research before investing in any of the companies shown below.

Select dividend payers from utilities sector

CompanyTickerMkt. Cap. ($ Mil.) *BetaNOPAT 3M Chg. (%)EPIDiv. Yld. (%)1Y Div. Gwth. (%)2Y Div. Gwth. (%)4Y Div. Gwth. (%)EVA 12M Chg. (%)1Y Rtn. (%)Recent Price ($) *
Brookfield InfrastructureBIP-UN-T18,045.80.81.02.04.612.08.312.9217.725.164.49
Canadian Utilities Ltd.CU-T10,678.00.41.31.24.48.79.39.7164.423.339.17
Emera Inc.EMA-T13,906.20.20.31.24.35.05.510.9148.845.158.28
Duke Energy Corp.DUK-N70,739.80.10.31.04.24.24.23.922.621.497.17
Edison InternationalEIX-N24,628.10.20.51.33.63.67.711.0169.711.775.59
Atco Ltd.ACO-X-T5,620.60.61.71.33.511.012.914.0243.730.249.16
Consolidated EdisonED-N31,254.50.10.31.13.33.63.43.316.523.694.14
Evergy Inc.EVRG-N15,543.10.20.51.13.117.89.97.3147.220.266.01
DTE Energy Co.DTE-N24,239.80.30.31.52.97.17.07.784.821.2132.24
Alliant Energy Corp.LNT-Q12,888.60.30.21.12.86.26.56.825.127.754.35

Source: Inovestor for Advisors

* Note: Market cap and recent stock are shown in native currency.

Noor Hussain is an analyst and account executive for Inovestor Inc.

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