Utilities provide essential services, such as meeting electric, natural gas, water, sewer, garbage collection, and other basic needs. Given the essential nature of their businesses, these companies deliver stable and predictable financials regardless of broader market conditions. So, utility stocks would be excellent defensive bets that stabilize your portfolios in a volatile environment. Against this backdrop, let’s look at three top Canadian utilities you can buy right now.
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Fortis
Fortis (TSX:FTS) operates 10 regulated utility assets, serving 3.5 million customers across the United States, Canada, and the Caribbean. With a regulated asset base and low-risk utility business, the company has generated stable and predictable cash flows, allowing it to raise its dividends for 51 years. Meanwhile, the utility company has also delivered an average total shareholder return of 10.3% for the last 20 years, comfortably outperforming the broader equity markets.
Moreover, Fortis is expanding its assets base with a $26 billion capital investment plan, which could increase its rate base at an annualized rate of 6.5% through 2029. Further, the favourable rate revisions and improving operating efficiencies could support its earnings growth in the coming year. Amid its healthy growth prospects, the company’s management hopes to maintain its dividend growth and expects to raise its dividends by 4–6% annually through 2029. Also, it offers a healthy forward dividend yield of 4% and trades at an attractive NTM (next 12 months) price-to-earnings multiple of 18.7, making it an excellent buy.
Hydro One
Hydro One (TSX:H) is a pure-play electric transmission and distribution company that serves 1.5 million customers in Ontario. With no material exposure to commodity price fluctuations and a regulated asset base, the company generates stable and predictable financials irrespective of the market conditions. The hydro producer has also expanded its asset base at a 5% CAGR (compounded annual growth rate) since 2018, thus supporting its earnings and dividend growth. Since 2017, the management has raised its dividends at an annualized rate of above 5% and currently offers a healthy forward dividend yield of 2.8%.
Moreover, the demand for electricity is rising amid favourable policy changes, solid economic growth, and increasing income levels. Hydro One continues to expand its assets amid demand growth with the $11.8 billion capital expenditure plan that spans through 2027. These investments could grow its rate base at a 6% CAGR (compound annual growth rate) to $31.8 billion by 2027. Besides, its cost-cutting initiatives and improving operating efficiencies could support its earnings growth in the coming years. The Timmins-based electric utility company recently raised $750 million by issuing medium-term loans. It has planned to utilize the net proceeds to fund its existing and new projects. Amid these growth initiatives, Hydro One expects its EPS to grow by 5–7% annually, thus supporting its annual dividend growth of 6% through 2027.
Canadian Utilities
Canadian Utilities (TSX:CU) is involved in electricity and natural gas transmission and distribution, power generation and storage, and also offers industrial water solutions. Its regulated transmission and distribution business, multi-year contracts with a high-quality, diverse customer base in the energy storage business, and power sales through PPAs (power purchase agreements) create a stable base of recurring cash flow, thus allowing it to raise dividends consistently. The Calgary-based utility company has raised its dividends for 52 years and currently offers a healthy forward dividend yield of 5.3%.
Moreover, CU is progressing with its three-year capital investment plan of $4.3–$4.7 billion, expanding its rate base at an annualized rate of 3.5%–4.3% through 2026. Further, the company has planned to add 1.5 gigawatts of power-generating facilities by 2033 with a capital investment of $2.5 billion. These growth initiatives could boost its earnings growth, thus supporting its future dividend payments.
