XUT - a Slow but Steadily rising Utility ETF
Their three Major Investments
The 3 major investments in XUT are Fortis, Brookfield Infrastructure and Emera,in that order.Fortis was based in Atlantic Canada but has fairly recently made a substantial amount of investments in United States.It has solid earnings and a conservative P/E multiple at 13.But it has no catalyst to strongly move it ahead in 2021 or 2022. The third most important utility by weight is Emera which 2 years ago acquired a huge utility based in Florida with assets in the Carribean. EMA took on considetrable debt in order to acquire the Florida based utility and there was little profit in the first year of operation.But it has gooten higher rates from the regulator and at the same time paid off part of it's debt.In the meantime Emera has raised it's dividend two times.
Second in weightiness is Brookfield Infrastructure (BIP) which is under the Brookfield Asset Management (BAM) umbrella.It has a market cap of $23 billion,a substantial yield at 3.7% with a P/E ratio of 35 times.Reportedly BAM has 60% of the BIP shares but 100% of the control and manages BIP for an annual fee.And BIP just completed the successful acquisition of 76% of Interpipeline which owns several pipelines in western Canada.BIP is in a good position to make other acquisitions as it sold off $1.3 billion of non-core assets and completed $7 billion of asset refinancing.While it's Q2 results showed an 18% increase in FFO.
The largest investment in XUT are it's shares in Fortis (FTS).This is the former Newfoundland Light and Power but became Fortis in 1987.It operates in Canada, U.S.A.Central America and the Carribbean.Fortis has a market cap of $27 billion and pays a reaonable yield of 3.5% In 2020 it earned revenues of $8.9 billion and had net income of $1.4 billion.It is not too expensive with a P/E ratio of 21.
What about Northland Power?
Northland Power is a favourite stock of mine but only accounts for about 6% of the total investment in XUT.But they are a very innovative company that bought tracts of land and energy rights in the North Sea which has reportedly the strongest winds in the world.It built 3 large wind farms (600 MW each) from scratch and sells energy to the Dutch and Germans.It has 20 year power contracts with both Dutch and German utilities.NPI has shown Europeans that it is innovative and reliable and it will gradually become more and more profitable.
A Diversified Utility
XUT is a diversified utility with renewable and non renewable assets.pipelines, foreign wind farms and even a little solar energy.So the assets securing this ETF are both strong, valuable and diversified in several sectors and countries.Most of the assets are regulated so as to cover their costs and earn a reasonable rate of return.So XUT will not rise like the online payment stocks (Shopify and Lightspeed) but it will slowly and steadily rise as it's assets become more valued.XUT is now trading in a range around $30 per share while the Canadian and American economies are not yet in full recovery mode.This blog is expecting total earnings to rise in Q3 and Q4.Consequently it is not unreasonable to expect XUT to be in a range around $32-$34 by yearend.This will give investors a 6-10% gain in 3-4 months.
Dale Mcintyre is a freelance writer that works with Zacks Research.
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