What are we looking for?
Sustainable dividends from power utilities offsetting their rising natural gas costs with renewable sources.
The screen
Today’s high natural gas prices – in Europe, driven by conflict with Russia, and also North America – point to the vulnerabilities of electric utilities that are reliant on gas.
That’s why the top producers are increasingly adding renewables to their energy-generation assets. Outside of any environmental benefit – and the appeal for institutional investors – the move lets these companies limit the impact of gas supply constraints and price spikes.
We’re looking for sustainable dividend payers among those well-prepared power generators. Our TSI Dividend Sustainability Rating System 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’s 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
Our TSI Dividend Sustainability Rating System generated seven stocks: Halifax-based Emera Inc. EMA-PR-L-T, with major power production centred in Nova Scotia and Florida, aims to make renewables a pillar of its generation strategy by adding to its wind, solar, hydro, tidal and biomass assets. Fortis Inc FTS-T., headquartered in St. John’s, is focused on leveraging renewable natural gas produced at farms and landfills from decomposing organic waste.
Wisconsin-based Alliant Energy Corp. LNT-Q is investing in solar, wind and hydro power with the goal of not just replacing its coal generation but eventually its gas-fired plants as well. Ameren Corp. AEE-N, headquartered in St. Louis, Mo., plans to continue to increase its renewables component beyond the current 20 per cent-plus by adding more wind, solar, landfill gas, agricultural methane and hydroelectric power assets.
Calgary-headquartered Atco Ltd. ACO-X-T controls Canadian Utilities Ltd. CU-T, also based in Calgary, while Capital Power Corp.’s CPX-T head office is in Edmonton. All three Alberta companies are steadily phasing out their coal-burning plants in favour of natural gas – but also renewable energy from solar, hydro, wind, hydrogen and geothermal sources.
We advise investors to do additional research on any investments we identify here.
Scott Clayton, MBA, is senior analyst for TSI Network and associate editor of TSI Dividend Advisor.
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