Who doesn’t want to beat the market? Beating the market means that you get higher returns than the market.

In recent years some investors have decided to invest in index funds that cover the whole market. The goal is to match the market returns (minus any transaction fees or management expenses).

Simply beat the market

However, history shows that it can be very simple to beat the market, and that’s by investing in three publicly traded utilities that are Canada’s top dividend-growth stocks. Not only do they outperform the market in total returns over the long term, but they also typically beat it in terms of income because they offer higher yields.

These utilities are Canadian Utilities Limited (TSX:CU), Fortis Inc. (TSX:FTS), and ATCO Ltd. (TSX:ACO.X).

As a comparison, I will use the ETF iShares S&P/TSX 60 Index Fund (TSX:XIU) to represent the market. It tracks the largest 60 stocks in the Canadian market and sufficiently represents it.

Here are the total returns (with dividends reinvested) of each investment over different long-term time frames. Canadian Utilities, Fortis, and ATCO were all better investments than the market over these periods. In fact, these utilities gave higher returns with lower volatility.

5-Year 10-Year 15-Year
Canadian Utilities 6.3% 6.3% 8.9%
Fortis 5.1% 7% 12.3%
ATCO 5.6% 7.5% 9%
The market 0% 2% 2.7%

Even great companies can underperform occasionally

You may be interested to know that Canadian Utilities and ATCO have recently lagged the market. Year-to-date, the market’s total returns were -9.8%, Canadian Utilities’s were -19.3%, ATCO’s were -23.5%, and Fortis’s were 0%.

Of the group, Fortis performed the best and was the most stable. No matter how you look at their recent performances, these utilities have either dipped or, in Fortis’s case, didn’t move much. So, now may be a good time to consider these utilities.

These utilities offer better income

Other than their ability to outperform in long-term returns, these utilities also typically beat the market in current income. Right now, iShares S&P/TSX 60 Index Fund yields 3.1%, Canadian Utilities yields 3.7%, Fortis yields 4%, and ATCO yields 2.8%.

Further, these utilities pay more stable income than the market. iShares S&P/TSX 60 Index Fund has paid growing distributions since 2009, but these utilities have paid growing distributions for at least 21 years!


I’m not saying that you should buy only these utilities to beat the market. If you did, there would be too much concentration in one sector.

(There are other sectors you can buy to diversify for your portfolio: financials, energy, materials, industrials, consumer discretionary, telecommunication services, healthcare, consumer staples, information technology, and arguably, cash and equivalents, and real estate or REITs.)

However, these utilities would serve nicely as a part of a diversified portfolio. Fortis is particularly stable as a regulated utility. ATCO owns 53% of Canadian Utilities, so if you’re buying ATCO, you might avoid buying Canadian Utilities for double exposure.

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Fool contributor Kay Ng owns shares of ATCO LTD., CL.I, NV, CANADIAN UTILITIES LTD., CL.A, NV, and FORTIS INC.