3 Utility Stocks to Lead in the Future

Capital Power Corp. (TSX:CPX) is the best of these three exciting utility stocks.

| More on:
electricity transmission

You’re reading a free article with opinions that may differ from The Motley Fool’s premium investing services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Utilities have quietly kept up with the S&P 500 market, up ~13% year to date. A case could be made for a sector rotation with investors moving into more stable utility stocks. Here I consider three great companies.

Northland Power Inc. (TSX:NPI) develops and builds power projects largely in Canada, but it now has wind farms in Germany and the Netherlands. How does it look in the rear-view mirror? Northland dropped its dividend amount in 2009 and 2011. Despite a high annual growth in revenue and operating cash flow, both ~22% per year, this has not translated into consistent earnings per share (EPS). In fact, the average EPS dating back to 2008 is negative $0.05 per share. Northland’s balance sheet is a bit bumpy, which reflects the nature of the business, but the recent quarter shows the earnings margin is up significantly.

Algonquin Power & Utilities Corp. (TSX:AQN)(NYSE:AQN) has a diverse business in electricity, gas, water and wind energy in Canada and the United States. Algonquin has a comparable dividend yield with Northland at 4.4% and a payout ratio that is high, but it has been steadily dropping to safer levels. Algonquin cut its dividend back in 2010, so, like Northland, it fails the dividend test, but Algonquin has been steadily increasing the dividend ever since.

Algonquin is a better pick compared to Northland, in my opinion. Revenue and operating cash flows are very solid. EPS are increasing modestly each year. Algonquin also has substantially less debt than Northland, which is worth considering as interest rates on debt climb.

Capital Power Corp. (TSX:CPX) builds, owns, and operates power plants primarily in Alberta. Capital is a solid pick for dividend investors because the yield is high at 6.8%, making it the highest dividend payer among the three. It also passes a dividend test, since Capital has maintained or increased the dividend. Although revenue has fallen slightly in recent years, the balance sheet shows positive margins and solid performance.

Capital has been trading sideways — that is, in a narrow price range in 2017 — after bottoming in 2016. A patient investor could wait until this stock drops to the low 20s for a great buying point. It is hard to predict how much this stock would drop, but a word of caution is warranted if the stock drops below $24 per share — a support level.

Looking ahead and the best pick

All three of these companies have a potentially exciting future. Capital looks to be the best pick from among the three. Algonquin is a close second. Capital gets the nod largely because it has the lowest financial leverage. But Capital also appears to be taking Alberta’s Carbon Competitiveness Regulation seriously and intends to phase out coal facilities by end of 2030 or earlier.

Should you invest $1,000 in Freehold Royalties Ltd. right now?

Before you buy stock in Freehold Royalties Ltd., consider this:

The Motley Fool Stock Advisor Canada analyst team just identified what they believe are the Top Stocks for 2025 and Beyond for investors to buy now… and Freehold Royalties Ltd. wasn’t one of them. The Top Stocks that made the cut could potentially produce monster returns in the coming years.

Consider MercadoLibre, which we first recommended on January 8, 2014 ... if you invested $1,000 in the “eBay of Latin America” at the time of our recommendation, you’d have $20,697.16!*

Stock Advisor Canada provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month – one from Canada and one from the U.S. The Stock Advisor Canada service has outperformed the return of S&P/TSX Composite Index by 29 percentage points since 2013*.

See the Top Stocks * Returns as of 3/20/25

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Brad Macintosh has no position in any stocks mentioned. 

Confidently Navigate Market Volatility: Claim Your Free Report!

Feeling uneasy about the ups and downs of the stock market lately? You’re not alone. At The Motley Fool Canada, we get it — and we’re here to help. We’ve crafted an essential guide designed to help you through these uncertain times: "5-Step Checklist: How to Prepare Your Portfolio for Volatility."

Don't miss out on this opportunity for peace of mind. Just click below to learn how to receive your complimentary report today!

Get Our Free Report Today

More on Energy Stocks

A plant grows from coins.
Energy Stocks

2 Discounted Dividend Stocks With Significant Growth Potential

If you’re in search of income and capital appreciation in the long run, here are two discounted Canadian dividend stocks…

Read more »

Senior uses a laptop computer
Energy Stocks

Here’s How Investors Can Turn $15,000 in a TFSA Into $235,000

Energy stocks aren't created equal, and this one might be one of the best of the batch.

Read more »

A red umbrella stands higher than a crowd of black umbrellas.
Dividend Stocks

3 Reasons I’m Considering Enbridge Stock for a $5,000 Investment This April

I'm considering Enbridge stock to provide some defensive appeal and a juicy dividend to my long-term portfolio.

Read more »

Oil industry worker works in oilfield
Energy Stocks

CNQ Stock: Buy, Hold, or Sell Now?

CNRL is down 35% in the past year. Is CNQ stock now oversold?

Read more »

Canadian dollars in a magnifying glass
Dividend Stocks

Young Investors: How I’d Allocate $10,000 for Long-Term Potential

Young Canadians can achieve financial independence faster by saving and investing early.

Read more »

canadian energy oil
Energy Stocks

How I’d Position $7,000 in This Canadian Energy Stock for 2025 Growth Potential

Tourmaline, Canada's low-cost and largest natural gas producer, is benefiting from strong industry fundamentals.

Read more »

nuclear power plant
Energy Stocks

1 Magnificent Canadian Stock Down 40% to Buy and Hold Forever

This energy stock may be down, but do not count it out if you're looking for long-term income.

Read more »

A plant grows from coins.
Energy Stocks

Where I’d Put $15,000 in Top Energy Stocks for Income and Appreciation

The recent pullback in energy stocks presents a compelling opportunity for long-term investors to generate capital gains and dividend income.

Read more »