The fight against inflation is far from over. Industry analysts and bankers expect another rate hike in July or September 2023. High interest rates are headwinds for equities and could destabilize the TSX if it stays elevated longer.
Meanwhile, Canadian investors should not panic but take defensive positions. In the utility sector, Fortis (TSX:FTS) and Brookfield Renewable Partners (TSX:BEP.UN) can add stability to any portfolio and preserve purchasing power.
For investors of all profiles
Fortis is a no-brainer buy for retirees and risk-averse investors, if not all investor types. The $27.78 billion electric and gas utility company provides essential services and is less vulnerable to economic or market downturns. Strong evidence of reliability is the dividend-growth streak of 49 years.
One more dividend hike in 2023, and Fortis officially becomes the second Canadian Dividend King (50 years of consecutive dividend increases). The milestone is only half of the good news, as the other half is management’s annual dividend-growth guidance of 4-6% through 2027.
Last year, Fortis spent $4 billion in utilities for energy systems’ resiliency and modernization. The new five-year capital plan (2023 to 2027) of $22.3 billion is the largest in the company’s history. Around $5.9 billion (26.45%) will go to cleaner energy investments.
According to management, Fortis’s 10 regulated utility businesses (99% regulated) drive sustainable growth. The new capital plan is highly executable and should support a low-risk rate base growth. It should grow to $46.1 billion (6.2% compound annual growth rate) by year-end 2027 from $34.1 billion in 2022.
Management added that cash from operations and debt at regulated utilities would fund the capital plan. Fortis will focus on its three largest utilities during the period, whether infrastructure, integrity, distribution or renewable and storage investments.
Notably, the renewable energy franchise has increased its generation capacity by 15% since 2019. Fortis’s interim targets to reduce greenhouse gas (GHG) emissions are 50% by 2050 and 75% by 2035.
If you invest today, Fortis trades at $57.15 per share (+7.55% year to date) and pays a 4.02% dividend. A dividend-reinvestment plan (DRIP) is in place should any investor wish to increase holdings. You can purchase common shares at discounted prices (2% discount).
Resilient, diversified portfolio
Brookfield Renewable Partners continues to build out and expand its renewable energy business. The $17.77 billion company provides renewable power and decarbonization solutions to customers on five continents.
This utility stock is a Dividend Aristocrat owing to 13 consecutive years of dividend hikes. Because of its diverse portfolio (hydroelectric, wind, and solar) that generates high-quality cash flows, management aims to deliver targets of 12-15% total returns and 5-9% annual distribution growth.
Management said the company benefits from the favourable investment environment for renewables and decarbonization assets. Its chief executive officer Connor Tesky said the renewable power development pipeline is 126,000 megawatts, with about 5,000 megawatts of new capacity due for commissioning in 2023.
Performance-wise, the top-tier utility stock outperforms the TSX year to date at +17.45% versus +3.71%. At $39.32 per share, the dividend offer is 4.52%.
Downside protection
Dividends from Fortis and Brookfield Renewable should be rock-steady, and their resilient utility business is your downside protection.
