2 Utilities With 3.6% Yields and Capital-Appreciation Potential

Here’s why Fortis Inc. (TSX:FTS)(NYSE:FTS) and Canadian Utilities Limited (TSX:CU) are two of my favourite utility plays in today’s largely unstable market.

| More on:
The Motley Fool

The utilities sector is one that has been defined as a boring, defensive sector, considered largely by investors as a place to play it safe and put money away for an extended period of time. The utilities sector is certainly a unique one in that investors have a margin of safety with investments covering a large portion of the invested capital. This means investors should be able to put money into a utilities company and forget about it, coming back years later to see the principal investment still there, along with dividend income accumulated over the lifespan of the investment.

As such, utilities are often looked at as a bond proxy, providing income over a long period of time with a capital investment that should largely follow inflation. This is one of the main reasons why long-term investors prefer utilities.

Buying stocks at or near the book value of the underlying business’s assets ensures that a significant portion of the principal investment is secured with a reasonably assured income stream sure to come in the mid to long term.

I’ll look at two names that have done very well historically and are poised to continue to grow in good times and bad.

Fortis Inc.

Fortis Inc. (TSX:FTS)(NYSE:FTS) has been one of my favourite utility picks for a while. After analyzing this company’s financial statements and its long-term position in the Canadian and global utilities markets, I have picked Fortis out of the bunch as a company with a solid long-term strategy which supports a strong balance sheet and capital expenditures in worthwhile projects in the North American utilities market.

Besides boasting one of the best dividend records of any Canadian utility out there, Fortis has made some great long-term acquisitions that should provide long-term revenue stability in a sector that has been challenged by renewable energy companies; Fortis has committed $13 billion over the next four years in investments that include renewable energy projects — investments that are expected to generate increased revenues on the order of $30 billion over the long term.

Canadian Utilities Limited

Canadian Utilities Limited (TSX:CU) is another company operating in the heavily regulated utilities space globally. This company is centred in Canada; it’s focused on a number of Canadian electricity, natural gas, and pipelines operations, meaning Canadian Utilities benefits from a diversified approach to utilities that has led to a stable and growing return for investors over the past 18 years.

The safety of Canadian Utilities’s income stream is derived largely from its diversification activities across sectors as well as geographically, and this company is poised to continue its growth with an acquisitive and organic growth model stemming from the company’s strong free cash flow–generating business model.

Stay Foolish, my friends.

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 stocks mentioned.

More on Energy Stocks

Arrowings ascending on a chalkboard
Energy Stocks

Beat the TSX With This Cash-Gushing Dividend Stock

Canadian Natural Resources stock is well set up to beat the TSX as it continues to generate strong cash flows…

Read more »

energy industry
Energy Stocks

2 TSX Energy Stocks to Buy Hand Over Fist Now

These two rallying TSX energy stocks can continue delivering robust returns to investors in the long term.

Read more »

green energy
Energy Stocks

1 Magnificent TSX Dividend Stock Down 37% to Buy and Hold Forever

This dividend stock has fallen significantly from poor results, but zoom in and there are some major improvements happening.

Read more »

oil tank at night
Energy Stocks

3 Energy Stocks Already Worth Your While

Here's why blue-chip TSX energy stocks such as Enbridge should be part of your equity portfolio in 2024.

Read more »

Solar panels and windmills
Energy Stocks

1 Beaten-Down Stock That Could Be the Best Bet in the TSX

This renewable energy stock could be one of the best buys you make this year, as the company starts to…

Read more »

Dice engraved with the words buy and sell
Energy Stocks

Is Enbridge Stock a Buy, Sell, or Hold?

Here's why Enbridge (TSX:ENB) remains a top dividend stock long-term investors may want to consider, despite current risks.

Read more »

Gas pipelines
Energy Stocks

If You Had Invested $5,000 in Enbridge Stock in 2018, This Is How Much You Would Have Today

Enbridge's high dividend yield hasn't made up for its dismal total returns.

Read more »

Bad apple with good apples
Energy Stocks

Avoid at All Costs: This Stock Is Portfolio Poison

A mid-cap stock commits to return more to shareholders, but some investors remember the suspension of dividends a few years…

Read more »