With interest rates on the rise, utilities stocks have represented, in some ways, the baby that has been thrown away with the bathwater by financial markets of late. Often viewed as bond proxies, interest rates are typically seen as a blunt-force instrument to utilities outfits, with the attractiveness of high-yield fixed-income options taking much of the luster away from firms providing bond-like yields in equity markets.
That being said, these three companies have the potential to continue to outperform in the years to come, despite concerns about rising rates, for a number of different reasons. Let’s get to it!
Algonquin Power & Utilities Corp.
A diversified play on utilities, Algonquin Power & Utilities Corp. (TSX:AQN)(NYSE:AQN) provides investors with exposure to a range of utilities sectors across North America and some of the highest levels of exposure to the U.S. market among its peers. The company has been on an acquisition spree of late and has grown its revenue base substantially, investing in accretive plays, which have boosted the company’s free cash flow generation abilities, allowing for a 4.6% yield.
Algonquin Power is an excellent play as a hedge against a reduction in the CAD/USD exchange rate, with a dividend paid out in USD and the majority of the company’s earnings also sourced in the U.S. market.
A company with one of the longest track records of dividend increases on the TSX, Fortis Inc. (TSX:FTS)(NYSE:FTS) is a firm investors have learned to lean on for long-term income potential over time. This company has raised its dividend annually for more than four decades.
Other utilities companies have modeled themselves after Fortis, a company which has not only survived previous high-yield environments, but learned how to thrive and grow its way out of such macroeconomic environments. Fortis currently carries a yield of 4%.
Brookfield Renewable Partners L.P.
The highest yielder on the list, Brookfield Renewable Partners L.P. (TSX:BEP.UN)(NYSE:BEP) offers investors a forward dividend yield of 6.5%, making this company an ideal play for those looking for a slightly higher yield alongside an excellent growth profile. Brookfield Renewable has invested in a number of renewable projects that carry long-term contracts, securing profitability and providing upside for investors betting on a “green revolution” on the utilities sector overall.
Brookfield has recently raised its dividend once again and has continued to invest in emerging markets, making this an excellent play on long-term growth in parts of the world, which will continue to outpace North America in terms of energy-generation needs.
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Fool contributor Chris MacDonald has no position in any stocks mentioned in this article. Brookfield Renewable Partners is a recommendation of Dividend Investor Canada.