Inflation looks like it may finally be coming under control. The Consumer Price Index (CPI) for October dropped to just 3.1%, down 0.1% month over month. Yet we’re not there yet, which is why it can still be incredibly beneficial to consider utility stocks.
Why utility stocks?
It’s a good question. After all, utility stocks are still down pretty much across the board at the moment. But this is due more to investors flooding the stocks, only to sell them off back in the earlier days of the downturn.
Now, utility stocks are a great deal. Even though higher interest rates and inflation may hurt them a bit for now, these companies have long-term contracts and steady cash flow. This has created stable situations for pretty much all utility stocks.
How stable? Consider that the only two Dividend Kings on the TSX today are both utility stocks. But today, we’re going to look at them along with one more.
The Dividend Kings
If you’re looking at dividend companies, probably some of the first you’re going to come across are Fortis (TSX:FTS) and Canadian Utilities (TSX:CU). Both of these companies are the Dividend Kings I’ve been discussing. That means they’ve increased their dividend for the last 50 consecutive years!
If you’re looking for dividend income to fight back inflation, these are certainly the ones to consider. After all, inflation sits at 3.1%, as mentioned. However, Fortis stock has a dividend yield of 4.21%, with CU stock at 5.87%. Therefore, even if shares stayed the same, you could look forward to inflation-beating income from these dividend stocks.
And you can be sure they’ll recover. Each has for the last several decades! In fact, both are also trading either down or stable from a year ago. That provides you with a stellar opportunity for growth as the market returns to normal.
A growth option
Now that we’ve covered the two stable utility stocks of the past, let’s look to the future. That future should certainly include Hydro One (TSX:H). Hydro One stock is a far newer utility stock, but one that has a major future ahead of it. This comes from being the top energy producer in Ontario, with even the government of Ontario holding a major stake in the company.
Here, you get access to the potential for future growth as the company is just starting out. What’s more, it’s in a financially strong position, with stable cash flow coming in from the same long-term contracts. Granted, shares trade at around inflation at 3.11% as of writing. But also consider that shares are up 5% in the last year, despite all this volatility.
Now that we’re potentially coming out of this volatility, investors should look forward to more growth, both from this utility stock and others. So, if you’re looking to fight inflation, go for it when considering the dividend yield. But don’t ignore the fact that these three utility stocks should also provide strong passive income for the future through returns.
