Better Buy: Fortis Stock or Hydro One Stock?

Let’s do a compare and contrast of these two top utilities stocks right now, shall we?

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Utility stocks are generally great long-term investments. That’s why I tend to pound the table on a few names in this sector. However, as with any space investors like to focus on, some companies are better than others, and determining which among a group of stocks is the better buy is a focus for many investors.

I’m going to do a compare and contrast of two of the best dividend stocks in the Canadian utilities sector in this piece. These are both companies I’ve been bullish on in the past, but I’ll provide my thinking on why one beats out the other in terms of its total return upside over the long term.

Fortis

Fortis (TSX:FTS) is an electric and gas utilities company, serving its business in Canada, the United States, the Caribbean and Central America. With over 3.5 million customers, Fortis ranks among North America’s largest companies when it comes to market share.

Fortis’ business model is quite decentralized. Though each of the subsidiary companies operates independently in terms of geographies, the parent company provides investment and expertise to enhance further growth of the subsidiary companies.

Fortis’ revenues from its last quarterly report available for its fiscal year 2025 improved, with the company bringing in $2.7 billion in revenue for the quarter, compared to $2.6 billion for the same quarter the year prior. In terms of net income, this translated into $331 million, up 26% on a year-over-year basis. On an EPS basis, the company beat expectations at $0.67 per share by a rather wide margin.

The company’s steady dividend growth (for more than 50 years) is a key selling point for passive investors. Indeed, this is a key factor I consider in my view of Fortis as a top buy-and-hold opportunity over the long term. For those looking for not only stable and consistent dividend income (with a yield of roughly 4.1%), this is a stock I think is worth adding for its total return potential.

Hydro One Limited

Hydro One Limited (TSX:H) is a transmission and distribution utility company focused on providing electricity to more than 1.5 million customers, mainly in the Ontario market. The company’s business model is thus less integrated than Fortis’, and it’s less diversified from a geographic perspective. But for those who like the regulated utilities market in Ontario, this is an obvious pick to consider.

Hydro One reported $2 billion in revenues for the second quarter, up 9.4% from year-over-year comparisons. Its revenues, net of purchased power, increased 3% to $1.1 billion on the strength of rate revisions and increased demand. 

While its OM&A (operation, maintenance, and administration) expenditures decreased by 5.1% year-over-year, due to declining work program expenditures. Meanwhile, the company invested $1.5 billion of capital during the first two quarters of this year, putting $766 million worth of projects into service. It plans to keep its $11.8 billion capex plan throughout 2022 to 2027, thereby increasing its rate base at an annualized rate of 6% until 2027. 

The company has also initiated cost-cutting measures, including outsourcing specific activities and strategic sourcing initiatives. It may continue to yield productivity cost savings in the long term while enhancing profitability.

The verdict

I’m of the view that Fortis is likely the better long-term pick, and I’m basing that mostly on the company’s dividend growth track record and recent stock price movement. Over the long term, I think the market will continue to value this company at a premium, and I do think there’s room for some valuation expansion from here.

Both companies will likely be beneficiaries of secular tailwinds tied to expectations of surging electricity demand driven by AI and other factors. But the fact that Fortis also has a natural gas business is something I like, and I think it separates the company from the pack.

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 Chris MacDonald has no position in any of the stocks mentioned. The Motley Fool recommends Fortis. The Motley Fool has a disclosure policy.

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