RRSP Investors: 2 Utility Stocks That Will Provide Income for Decades

Central banks are cooling on rate hikes which could be great news for utility stocks like Hydro One Ltd. (TSX:H) and Canadian Utilities Ltd. (TSX:CU).

| More on:
hydroelectricity facility

Photo: Ontario Power Generation - Adam Beck Complex. Rotated. Resized. Cropped. Licence: http://creativecommons.org/licenses/by-sa/2.0 Source: https://commons.wikimedia.org/w/index.php?curid=2564777

The odds of a July rate hike from the Bank of Canada have dropped along with the Canadian dollar in recent weeks. Central banks in Canada and across the developed world are souring on growth prospects as trade tensions continue to heat up. NAFTA negotiations have deteriorated over the past two months, and relations between the United States and Canada have worsened.

All of these factors, combined with anxiety over the U.S.-China trade spat, have lowered the odds of a second rate hike this year. Utility stocks have been battered on the TSX since the rate hike in January. A dovish signal for the second half of 2018 may be good news in the near term. For the long-term, however, utilities remain one of the best bets for consistent dividend growth.

RRSP investors should be particularly drawn to the two stocks we will cover today. Both boast a wide moat and the promise of dividend-growth going forward. Let’s take a look.

Canadian Utilities Ltd. (TSX:CU)

Canadian Utilities is a Calgary-based subsidiary of Atco Ltd., and offers gas and electricity services. Shares of Canadian Utilities had fallen almost 14% as of close on June 20.

The company posted record adjusted earnings of $602 million, or $2.23 per share for the full-year in 2017. Investment and rate base growth was a big contributor. Canadian Utilities invested $1.7 billion in capital growth projects in 2017, with plans to invest an additional $5.4 billion from 2018 to 2020. This is expected to boost its rate base and bump up earnings going forward.

Canadian Utilities also boasts a quarterly dividend of $0.3933 per share, representing a 4.6% dividend yield. The company has delivered 46 consecutive years of dividend growth, the longest current streak on the TSX.

Hydro One Ltd. (TSX:H)

Hydro One stock was up 4.8% month-over-month as of close on June 20. The company has had a hectic spring, to say the least. Investors are likely waiting to see what the new PC leadership will do after leader Doug Ford signalled his intention to push out CEO Mayo Schmidt and other board members during the Ontario election campaign. This political drama has overshadowed some good news in the first quarter.

Hydro One saw net income rise 33% year-over-year in the first quarter to $222 million. Adjusted net income was $210 million compared to $167 million in the prior year. The company saw its earnings surge on the back of seasonal weather, controlled operating costs, and a decision from the Ontario Energy Board (OEB) on transmission rates.

Hydro One also hiked its quarterly dividend by 5% to $0.23 per share, representing a 4.4% dividend yield. The biggest short-term risk at Hydro One is political, but it would be a dangerous move for the “pro-business” PC party to disrupt a $12 billion company. The new government will have other priorities, and investors should expect the incendiary rhetoric against Hydro One to fade as Ford settles into his role as leader.

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 Ambrose O'Callaghan owns shares of HYDRO ONE LIMITED.

More on Investing

Middle aged man drinks coffee
Dividend Stocks

Is Brookfield Stock a Buy, Sell, or Hold for 2025?

BAM stock recently jumped after beating earnings. But is it still a buy, or is it better to wait?

Read more »

Make a choice, path to success, sign
Dividend Stocks

Is Fortis Stock a Buy for its Dividend Yield?

Fortis has increased the dividend for 51 consecutive years.

Read more »

oil and gas pipeline
Energy Stocks

Is TC Energy Stock a Good Buy?

TC Energy stock has a lot going for it, but there are also a few red flags to consider before…

Read more »

Electricity transmission towers with orange glowing wires against night sky
Dividend Stocks

3 Top Canadian Utility Stocks to Buy in November

Are you looking for some top Canadian utility stocks to own? Here's a look at three must-have options for any…

Read more »

View of high rise corporate buildings in the financial district of Toronto, Canada
Dividend Stocks

Is First Capital REIT a Buy for its 4.8% Yield?

First Capital is a REIT that offers you a tasty dividend yield of 4.8%. Is this TSX dividend stock a…

Read more »

TFSA (Tax free savings account) acronym on wooden cubes on the background of stacks of coins
Dividend Stocks

TFSA Passive Income: 3 Stocks to Buy and Never Sell

Stocks like Fortis Inc (TSX:FTS) are worth holding long term.

Read more »

Electricity transmission towers with orange glowing wires against night sky
Dividend Stocks

Canadian Utility Stocks to Buy Now for Stable Returns

Given their regulated business, falling interest rates, and healthy growth prospects, these three Canadian utility stocks are ideal for earning…

Read more »

Investor reading the newspaper
Investing

Is Couche-Tard Stock a Buy, Sell, or Hold for 2025?

Let's dive into whether Alimentation Couche-Tard (TSX:ATD) is a top stock to buy, sell, or hold in the coming year.

Read more »