Emera shares have a nice yield, but this dividend stock looks safer

When it comes to finding high-quality and reliable dividend stocks with consistent growth potential year in and year out, there’s no doubt that a top-tier utility stock like Accept (TSX:EMA) is a good choice to consider.

Utility stocks like Emera are well known among investors and are among the most stable and predictable companies you can own.

First, because they provide essential services like electricity and gas, they are incredibly defensive. So even if the economy slows down, or even enters a full-blown recession, utilities like Emera see little impact on demand for their services.

In addition, however, the utility industry is regulated by the governments in each jurisdiction where these companies operate. That makes their future revenues, cash flow and profits very predictable and allows stocks like Emera to consistently invest in expanding their businesses.

Utility stocks will never provide massive growth potential overnight like technology stocks might, but they do provide steady and reliable growth. More importantly, they can help you protect your capital if the market sells off.

Finally, in addition to their incredibly defensive business model, many utility stocks, including Emera, have highly diversified operations. In this way, by operating in different regions, it helps to limit even more risks. That’s why these are some of the most reliable stocks you can buy on the TSX.

But even with an incredibly reliable company, there are always risks, and while Emera’s dividend is certainly incredibly safe, here’s why you might want to consider another utility, like Fortis (TSX:FTS), instead.

Is Fortis a better utility stock to buy than Emera?

Both Fortis and Emera have very similar activities; both are utilities that provide electricity and gas to their customers, and both are multibillion-dollar companies with diversified operations across North America.

These similarities aside, Emera may initially seem like the most attractive stock. For example, at the time of writing, Emera shares offer a dividend yield of 4.4%, compared to Fortis, which offers a current dividend yield of 3.5%.

That’s a significant difference in returns, especially for dividend investors looking to increase their passive income as much as possible.

And while Emera is still incredibly safe and reliable, Fortis stock goes one step safer.

For example, if we look at the normalized earnings per share (EPS) that each share generated in 2024, Fortis had a payout ratio of only 73%. Emera, on the other hand, paid out about 98%.

That’s a huge difference, and while a payout ratio of almost 100% isn’t that worrying for a utility like Emera with very predictable future earnings and cash flow, it’s clear how much safer Fortis is.

A lower payout ratio gives Fortis flexibility

The fact that Fortis has a much lower payout ratio than Emera stock certainly makes it one of the most reliable companies you can invest in today, but it’s not the only reason why Fortis may be the better long-term investment.

As I said, even with a payout ratio of just under 100%, Emera is still a stock you can trust. So if this really just comes down to risk and reliability, the higher yield alone could still make Emera worth owning.

However, Fortis’ lower payout ratio also allows it to increase its dividend at a much faster pace. So while the stock currently offers a lower yield, investors have more dividend growth potential from Fortis, at least in the short term.

Fortis, for example, is currently targeting annual dividend growth of 4% to 6% in the coming years. Emera shares, on the other hand, are targeting more modest annual dividend growth of 1% to 2% as they look to lower the payout ratio.

So while Emera is still an incredibly reliable dividend stock, offering an attractive yield of around 4.4%, Fortis is probably the better choice today if you’re looking for the safest possible stock or prefer more dividend growth potential.