When it comes to shoring up your portfolio and ensuring your money is well protected, there’s no question that some of the top stocks Canadians can add to their portfolios heading into 2025 are utility stocks.
Having a well-diversified and resilient portfolio is crucial for safeguarding your investments during market fluctuations. It also provides the confidence to stay committed to your strategy and hold your stocks over the long term.
So, in this environment, where there is still considerable uncertainty in both the stock market and the economy, defensive stocks, like some of the top Canadian utility stocks, are unquestionably some of the most important investments to make heading into 2025.
So, with that in mind, let’s look at two of the top utility stocks in Canada, Fortis (TSX:FTS) and Emera (TSX:EMA), to determine which fits best in your portfolio.
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One of the best and most popular Canadian utility stocks
Utility stocks are well-known not only for their reliability and defensiveness but also for their consistent dividend growth.
So, it’s no surprise that one of the best and most popular Canadian utility stocks, Fortis, has a dividend growth streak that’s lasted for an incredible 51 straight years.
Furthermore, with a market cap of more than $31 billion and operations in several different jurisdictions, Fortis has diversified its already low-risk operations considerably, making it one of the most reliable utility stocks Canadians can buy.
Going forward, Fortis plans to increase its rate base from $37 billion last year to more than $49.4 billion by 2028. That would be a compound annual growth rate (CAGR) of approximately 6.3%.
This rate base expansion is expected to drive earnings, supporting the company’s annual dividend growth guidance of 4% to 6% through 2028. So, Fortis should continue to grow both its share price and dividends at a consistent pace.
FTS stock never offered investors the most explosive growth, but its consistency makes it such a reliable investment. You have to pay for that reliability, though, especially in this environment.
For example, currently, Fortis is trading at a forward price-to-earnings (P/E) ratio of 19.5 times compared to its five-year average of 19 times. Meanwhile, as its share price has continued rallying in recent weeks, its dividend yield has declined to roughly 3.9% today, which is in line with its five-year average.
The one benefit of Fortis, though, is that it keeps its dividend payout ratio at just 74%, which not only provides flexibility for Fortis when it comes to investing capital but also ensures that the dividend growth remains sustainable.
A top dividend stock with a yield of more than 5.2%
Fortis is certainly the top utility stock Canadians can buy because of its reliability. However, some investors may be more interested in Emera for its higher dividend yield and growth potential.
For example, one benefit of Emera is that it’s currently trading slightly cheaper than Fortis, with a forward P/E ratio of 18 times compared to its five-year average of 17.8 times. Furthermore, its dividend yield of 5.2% is much higher than Fortis’ 3.9%.
The one drawback of Emera, though, is that its dividend payout ratio was 94% last year, and as a result, Emera has decided to reduce its dividend growth over the next few years to just 1% to 2% annually.
Emera expects this adjustment will reduce its payout ratio to approximately 80% of adjusted earnings by the end of 2027.
So, although Emera forecasts annualized rate base growth of 7% to 8% through 2029, which is higher than Fortis, and is aiming for a three-year average adjusted earnings per share (EPS) growth of 5% to 7% through 2027, the dividend won’t grow nearly as much as Fortis over that stretch.
Over the long haul, though, this slower dividend growth in the near term will help Emera become more flexible and make its dividend more sustainable, ultimately helping to extend its dividend growth streak, which currently sits at 18 years.
The bottom line
Emera and Fortis are unquestionably two of the top utility stocks Canadian investors can buy now, but choosing which is right for you is essential.
For investors who prefer stability and higher dividend growth, Fortis is the ideal choice. However, if you want a higher yield or more growth potential over the coming years, Emera looks best.
