Government bonds are once again paying real income, confronting utility investors with a competitor they have not had to take seriously in years. Canada’s benchmark 10-year bond yield recently hovered around 4%, putting a risk-free return on offer that compares uncomfortably with the 3% to 4% yield on a typical utility stock.
That gap is pressuring utility share prices even as the electrical systems underneath them keep growing. For investors with a decade-long horizon, the tension may nonetheless be creating an opening.
Emera Inc. (TSX: EMA), the Halifax-based owner of regulated electric and gas utilities including Tampa Electric in Florida and Nova Scotia Power, sits at the center of that debate. The stock yields about 4.3% — close to the government-bond benchmark — while management targets 5% to 7% annual adjusted earnings-per-share growth through 2030.
Utilities are unusually sensitive to interest rates for two reasons. First, they are capital intensive: building transmission lines, substations, power plants, batteries and gas infrastructure requires billions of dollars, much of it borrowed. Higher rates make every future project more expensive to finance.
Second, utilities compete directly with bonds for income investors. As the risk-free government yield climbs, investors demand more from utility stocks too, and share prices fall until expected returns look attractive again. The question then becomes whether a company can grow earnings fast enough to offset the financing pressure.
Emera’s answer leans on its regulated model. Rather than selling commodities in volatile markets, the company invests in infrastructure and then seeks regulatory approval to recover costs and earn an allowed return through customer rates. Its operations span Canada, the U.S. and the Caribbean.
The plan rests on heavy spending. Emera is targeting roughly C$4 billion of capital expenditure in 2026, having already invested more than C$1.7 billion in the first half alone. Over 2026 through 2030, it plans to deploy about C$20.4 billion, focused on reliability, grid modernization, renewable-energy integration and technology upgrades.
That investment is expected to lift average rate base from about C$26.2 billion in 2024 to roughly C$40.1 billion by 2030, a compound annual growth rate of 7.4%.
Second-quarter adjusted EPS came in at C$0.69, and management said full-year 2026 adjusted EPS growth is positioned to come in above its normal 5% to 7% target range.
Emera pays a quarterly dividend of C$0.73, or C$2.93 a year. At C$67.93 a share, that works out to the roughly 4.3% yield. The starting income is closer to current government-bond yields than most utilities offer, but the key difference is that Emera’s dividend can potentially grow over the next decade, while a bond coupon generally cannot.
The company has also been simplifying its portfolio. It completed the sale of Grand Bahama Power Company in May and of New Mexico Gas Company in August. The New Mexico transaction was expected to generate US$650 million to US$700 million in net after-tax proceeds, which Emera plans to put toward its capital plan and debt repayment.
A 4.3% dividend is not automatically better than a 4% government bond. The stock can fall. The dividend can be cut.
Regulated utilities carry substantial debt because they finance enormous asset bases, and persistently high borrowing costs could make new projects less attractive or slow earnings growth. Regulators must also approve the rates that let Emera recover its investments, creating execution and political risk — particularly when customer electricity bills are already a sensitive issue.
Rates may decide what investors pay for the stock next month. The assets Emera is building today will decide what the business earns a decade from now.
