A Dynamic Duo: Growth & Income

01/27/2009 12:01 am EST

Focus: GLOBAL

Tom Slee

Retired- Financial Advisor, Money Manager, Gordon Pape Enterprises LTD

Tom Slee, contributing editor of The Canada Report, sees extra “energy” in this Canadian utility, which offers growth and income.

Emera Inc. (TSX: EMA, OTC: EMRAF), (previously Nova Scotia Power Holdings) generates, transmits, and distributes electricity through its two main subsidiaries, Nova Scotia Power and Bangor Hydro Electric.

With assets of $4.2 billion, the company serves approximately 480,000 customers in Nova Scotia and 117,000 in eastern Maine. In addition, EMA owns 19% of St. Lucia Electricity Services, an electric utility serving more than 50,000 customers on the Caribbean island of St. Lucia.

Emera is a top-quality energy and services utility currently paying a dividend of $1.01 to yield 4.5%. True, like most regulated utilities, EMA is not terribly exciting. On the other hand, it offers stability, income, and some growth potential, exactly the qualities we are looking for now.

This is a tightly regulated, solid utility that is cautiously expanding away from its traditional power base. It has a 12.9% stake in the Maritimes & Northeast Pipeline, as well as a 50% joint venture interest in the Bear Swamp hydroelectric facility in Massachusetts and is actively looking for new opportunities.

As a result, the stock offers growth potential as well as income. For the first nine months of fiscal 2008, Emera reported earnings of Canadian $1.06 per share compared to C$1.03 per share for the same period in 2007.

Revenue in 2009 should total about $1.5 billion. Lower gas and coal prices in 2009 will reduce EMA’s operating costs, and earnings could come in at about $1.40 a share. As a result, I expect the company to raise its dividend to $1.03 a share this year. The increase would result in a 74% payout, within management’s targeted 75% ratio.

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The income is almost recession-proof and the current yield accounts for nearly all of the modest 5% total return that we are aiming for. Dividends are paid quarterly at the current rate of C25.25c per share.

We recommend buying the shares on the Toronto Stock Exchange, if possible. The OTC market is very thin. Emera meets all of our investment criteria in these uncertain markets and is recommended for investors seeking secure, above-average income and some capital gains. (The stock closed at $18.65 Monday in Toronto—Editor.)

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