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What are we looking for?

Sustainable dividends from power utilities poised to gain from falling inflation and the still-to-come easing of interest rates.

The screen

Receding inflation in both Canada and the United States bodes well for consumers. It signals the coming of lower consumer prices and the much-hoped-for ratcheting down of benchmark interest rates.

Power generators are no less eager for the downward movement of rates. As a rule, those utilities carry high levels of debt, and lower rates make it easier to raise money and refinance loans. In addition, their shares, which typically offer high yields, compete with fixed-income instruments for investor interest. That competition only heats up when high interest rates give a leg-up to bonds and other fixed-return investments.

Outside of long-term interest-rate movements, power utilities are now benefiting from expanding electricity demand from the energy-hungry data centres powering artificial-intelligence applications.

From a list of dividend-paying Canadian and U.S. power generators, we homed in on those with strong cash flow and assets best placed to meet rising electricity needs. From there, we applied our TSI Dividend Sustainability Rating System, which awards points to a stock based on key factors:

  • One point for five years of continuous dividend payments – two points for more than five;
  • Two points if it has raised the payment in the past five years;
  • One point for management’s commitment to dividends;
  • One point for operating in non-cyclical industries;
  • One point for limited exposure to foreign currency rates and freedom from political interference;
  • Two points for a strong balance sheet, including manageable debt and adequate cash;
  • Two points for a long-term record of positive earnings and cash flow to cover dividends;
  • One point if the company is an industry leader.

Companies with 10 to 12 points have the most secure dividends, or the highest sustainability. Those with seven to nine points have above-average sustainability; average sustainability, four to six points; and below-average sustainability, one to three points.

More about TSI Network

TSI Network is the online home of The Successful Investor Inc. – the group of widely followed Canadian investment newsletters by editor and publisher Pat McKeough. They include our award-winning flagship newsletter, The Successful Investor, and the TSI Dividend Advisor. TSI Network is also affiliated with Successful Investor Wealth Management.

What we found

Utilities with dependable dividends set to benefit from falling rates

Ranking*CompanyTickerDiv. Sustain. RatingPointsDiv. Yld. (%)Mkt. Cap. ($ Bil.)**1Y Ttl. Rtn. (%) Recent Price ($)**
1Emera Inc.EMA-THighest105.814.3-12.949.65
2Fortis Inc.FTS-THighest104.327.5-5.655.39
3Alliant Energy Corp.LNT-QHighest103.813.4-2.751.17
4Ameren Corp.AEE-NHighest103.719.9-12.473.20
5Capital Power Corp.CPX-TAbove Average96.54.9-17.938.07
6Canadian Utilities Ltd.CU-TAbove Average95.76.5-15.831.94
7ATCO Ltd.ACO-X-TAbove Average94.84.6-7.040.75

Source: Dividend Advisor. 

*Ranking is determined by TSI Dividend Sustainability Score. Where overall points are the same, analysts considered P/E, dividend yield and industry outlook to decide final placements.

**Share price and market cap are in native currency

Our TSI Dividend Sustainability Rating System generated seven stocks: Halifax-based Emera Inc. EMA-T owns 100 per cent of Nova Scotia Power, that province’s main electricity supplier. It also owns Tampa Electric, as well as power plants and gas pipelines in the U.S. and the Caribbean. Fortis Inc. FTS-T, headquartered in Newfoundland, is the main supplier of electrical power in Newfoundland and Prince Edward Island. It also owns electrical and gas utilities across North America. Wisconsin-based Alliant Energy Corp. LNT-Q sells electrical power and natural gas to 1.4 million customers in Wisconsin and Iowa. Ameren Corp. AEE-N, headquartered in St. Louis, Mo., supplies electricity and natural gas to 3.3 million customers in Illinois and Missouri. Calgary-headquartered Atco Ltd. ACO-X-T controls Canadian Utilities Ltd. CU-T, also based in Calgary, while Capital Power Corp. CPX-T is headquartered in Edmonton. All three Alberta firms offer exposure to power markets in Canada and elsewhere.

Scott Clayton, MBA, is senior analyst for TSI Network and associate editor of TSI Dividend Advisor.

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