Better Dividend Buy: Canadian Utilities or Fortis Stock?

Both utility stock are favourites among Canadian dividend investors. Here’s what I would pick.

| More on:

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

Looking for a combination of lower volatility and higher than average dividend yields? A great place to look is the TSX utility sector, which has long been a favourite for defensive income-oriented investors. Thanks to the evergreen nature of this industry and inelastic demand for its services, utility stocks have been more resilient.

When it comes to utility picks, Canadian investors usually default to two companies: Fortis (TSX:FTS) and Canadian Utilities (TSX:CU). Both stocks have historically paid consistent dividends and fluctuated less than the market, but which one is better? Let’s find out.

The case for Fortis

Fortis is known for its stability and consistency in earnings, primarily driven by regulated utility assets. The company has a long history of raising its dividend, making it a go-to choice for income-focused investors. Its diversified geographical presence also helps spread risk and contributes to its robustness.

At present, Fortis is distributing an enticing annual forward dividend yield of 3.69%, which means that for every $100 invested, shareholders would theoretically receive $3.69 in dividends over the course of a year. This is a significant metric for income-focused investors who look for steady cash flow from their investments.

This enticing yield is achieved while maintaining a payout ratio of 74.8%, indicating that almost three-quarters of the company’s earnings are returned to shareholders as dividends. While this is a fairly high ratio, it’s not uncommon for utility companies, known for their stable cash flows and generous dividend policies.

Currently, Fortis boasts a remarkably low five-year beta value of 0.17. The beta value is a measure of a stock’s volatility, or its price movement, in relation to the market. A beta less than 1 suggests that the stock is less volatile than the market, while a beta greater than 1 indicates that the stock’s price is more volatile.

In Fortis’ case, a beta of 0.17 means that the stock has been significantly less volatile than the market over the past five years. This low beta suggests that Fortis’ stock price has been relatively stable, experiencing smaller fluctuations even when the broader market has been volatile.

Created with Highcharts 11.4.3Fortis PriceZoom1M3M6MYTD1Y5Y10YALLwww.fool.ca

The case for Canadian Utilities

Canadian Utilities’ core strength lies in its well-established, regulated asset base, providing a predictable cash flow stream. Recently, it has also focused on investments in renewable and clean energy technologies. Compared to Fortis, it has a much smaller market cap of $10.5 billion versus $28.4 billion.

The company also has a history of delivering reliable dividends, similar to Fortis. Currently, Canadian Utilities is paying a higher forward annual dividend yield of 4.57%, against a similar payout ratio of 77.8%. The stock is also more volatile with a beta of 0.57, which is low but higher than Fortis’.

I’m also more impressed with Canadian Utilities’ balance sheet. CU has a higher current ratio of 1.1 and total cash of $725 million compared to Fortis at 0.68 and $576 million, respectively. This suggests that Canadian Utilities is in a better position to cover short-term liabilities and retain financial flexibility.

Created with Highcharts 11.4.3Canadian Utilities PriceZoom1M3M6MYTD1Y5Y10YALLwww.fool.ca

The Foolish takeaway

There’s no reason why investors have to pick just one. Given the strengths and weaknesses of each, I’d be inclined to split the difference and hold both. Another way is to simply purchase an exchange-traded fund (ETF) like the BMO Equal Weight Utilities ETF (TSX:ZUT), which holds 16 TSX-listed utility stocks in equal proportions, including Fortis and Canadian Utilities.

Created with Highcharts 11.4.3Bmo Equal Weight Utilities Index ETF PriceZoom1M3M6MYTD1Y5Y10YALLwww.fool.ca

Should you invest $1,000 in Canadian Apartment Properties right now?

Before you buy stock in Canadian Apartment Properties, 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 Canadian Apartment Properties 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 Tony Dong has no position in any of the stocks mentioned. The Motley Fool recommends Fortis. The Motley Fool has a disclosure policy.

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

Energy Stocks

Is Enbridge Stock (TSX:ENB) a Buy for its 5.9% Dividend Yield?

This solid dividend payer has the potential to help investors generate reliable passive income for decades.

Read more »

nugget gold
Dividend Stocks

Recession Stocks Are Back: Consider Buying the Dip This April

Recession stocks are back, and this one could be a solid winner.

Read more »

Person holds banknotes of Canadian dollars
Energy Stocks

Best Stock to Buy Right Now: Suncor vs Cenovus?

Suncor stock's 4.2% dividend yield vs Cenovus Energy's growth potential: Tariff-proof safety or growth gamble?

Read more »

Blocks conceptualizing Canada's Tax Free Savings Account
Dividend Stocks

How to Earn $500/Month in Tax-Free Income With Your TFSA

Canadians can earn $500 or a desired tax-free income every month by saving and investing through the TFSA.

Read more »

how to save money
Energy Stocks

1 Canadian Stock Ready to Surge in 2025 and Beyond

This Canadian stock has seen significant growth, but more could come for 2025 and beyond.

Read more »

oil and natural gas
Energy Stocks

Here’s How Many Shares of Enbridge You Should Own to Get $2,000 in Yearly Dividends

Solid dividend stocks like Enbridge could help you generate reliable passive income for decades.

Read more »

Pumpjack in Alberta Canada
Energy Stocks

3 Canadian Oil and Gas Stocks to Watch for in 2025

Oil companies like Suncor Energy (TSX:SU) are doing well this year.

Read more »

Aerial view of a wind farm
Energy Stocks

The Best Renewable Energy Stocks to Buy Before They Take Off

Here are two of the best Canadian renewable energy stocks you can buy today and hold for the long term…

Read more »