Investors seeking stability and worry-free dividend income could consider investing in top Canadian utility stocks in November. These companies operate fundamentally strong and regulated businesses and generate predictable cash flows, enabling them to consistently pay and increase their payouts for decades. With this backdrop, let’s look at three utility stocks that are smart buys.
Source: Getty Images
Utility stock #1
Fortis (TSX:FTS) is a leading Canadian utility stock to consider right now. This diversified North American utility company, focused on regulated electric and gas services, delivers steady earnings growth, which in turn supports its dividends and overall returns for shareholders.
Fortis’s 99% of the earnings come from regulated utility assets. Further, the company focuses on energy delivery, with 93% of its assets dedicated to transmission and distribution. This business strategy adds stability and enables the company to generate low-risk earnings across all market conditions.
Fortis’s defensive business model and consistent earnings growth support higher dividend payments. The utility company has raised its dividend for 51 consecutive years. Looking ahead, the company plans to continue rewarding its shareholders with higher payouts as it expands its rate base, which will drive future earnings.
Fortis’s consolidated rate base is projected to increase from $38.8 billion in 2024 to $53 billion in 2029. This growing rate base will drive Fortis’s earnings and help it grow its dividend by 4-6% over this period.
Fortis’s growing low-risk earnings base, diversified assets, $26 billion capital plan, rate base expansion, and dividend growth make it a dependable stock for stability and passive income.
Utility stock #2
Emera (TSX:EMA) is another compelling utility stock. This electric utility company derives 96% of its adjusted net income from regulated utilities, providing stability to its cash flows and supporting reliable dividend payouts. This dependable income has allowed Emera to increase its dividend for 18 years in a row.
Emera projects its rate base to grow by 7-8% through 2029, which is expected to drive earnings growth at an annual rate of 5-7% in the medium term. With its regulated assets, primarily in favourable economic jurisdictions, Emera is poised to deliver steady earnings and cash flows. The utility company plans to increase its dividend by 1-2% annually in the coming years and offers an attractive yield of 5.7%.
Notably, Emera’s management projects its earnings to grow faster than its dividend, supporting continued dividend increases and enabling the company to maintain a sustainable payout ratio.
Utility stock #3
Hydro One (TSX:H) is a no-brainer stock in the Canadian utility sector because of its ability to deliver solid capital gains and growing dividend payments. The company operates in the transmission and distribution segment of the utility industry. Further, it has no exposure to power generation or fluctuating commodity prices. This defensive business model and regulated operations allow Hydro One to generate stable, predictable cash flows.
Hydro One stock has gained over 115% in the last five years thanks to its consistent performance. Moreover, Hydro One’s dividend has grown at a CAGR of mid-single-digit rate since 2016.
Hydro One expects its rate base to increase at a CAGR of 6% through 2027. Its earnings per share is projected to grow by 5-7% over this period. Thanks to its growing earnings base, Hydro One aims to increase its dividend at a CAGR of 6%.
With a growing rate base, a solid balance sheet, and a sustainable payout ratio, Hydro One is a compelling utility stock.
