Utility stocks are generally considered some of the safest equity investments around. Offering stable revenue and considerable dividends, they provide a smooth and often profitable ride. That’s not to say that every utility stock is a winner. Sometimes the people who run utility companies mismanage their operations and cause their shares to perform poorly. A recent example of this was Algonquin Power & Utilities Corp following its third-quarter 2022 earnings release. That stock crashed hard after its earnings declined and missed expectations.
Nevertheless, the utility space is in principle a fruitful one to invest in. In this article, I will share two Canadian utility stocks that are well known for their solid dividend track records, both of them being confirmed Dividend Kings.
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Fortis
Fortis Inc (TSX:FTS) is a Canadian utility stock that has a 4% dividend yield and 51 consecutive dividend increases under its belt. At least 50 consecutive dividend increases makes a stock a Dividend King, so Fortis is a King and then some!
Fortis has many things to recommend it today.
First, the company has a reasonable payout ratio. At 74%, the ratio is arguably on the low end for utilities as a group.
Second, the company is actively working on growth, with a $26 billion capital expenditure plan that aims to increase the mid-year rate base from $38.8 billion to $53 billion.
Third, the company has a reasonable level of debt, with a 1.2 debt-to-total equity ratio.
Fourth and finally, Fortis aims to keep the dividend increases coming through 2028, and it has the earnings trajectory to back that plan up. All-in-all, it’s a solid bet.
Canadian Utilities
Canadian Utilities Inc (TSX:CU) is another Canadian utility that has the distinction of being a Dividend King. With 52 dividend increases under its belt, it’s an even bigger King than Fortis. Unfortunately, its performance and financial condition are overall not as good as Fortis’. It has a higher debt-to-equity ratio, more interest expense per unit of operating income, a higher payout ratio, and so forth. However, because of these slight disadvantages, CU also has one positive to recommend it over Fortis:
It’s cheaper. CU currently trades at just 16 times earnings and 5.4 times cash flow. The same multiples for Fortis are much higher. Also, CU’s dividend yield is much higher than Fortis’ (4.97% vs. 3.98%), so the income hungry might have a better experience with CU, at least in the short run.
Foolish takeaway
When it comes to dependable dividends, it’s hard to beat utilities. Both of Canada’s two Dividend King stocks are utilities, and that’s not surprising. Regulated utilities have highly dependable revenue streams, and are unusually resilient to recessions. For this reason, some of them have truly excellent dividend track records. That’s not to say that all utilities are great dividend investments. On the contrary, some are duds. However, if stable dividend income in itself is what you’re after, then utility stocks deserve a place in your portfolio. The two mentioned in this article are especially well recommended.
