Utility stocks can be a very boring group of equities as there isn’t much hype or oomph in their coverage. However, this class can generate outsized returns. The sector has outclassed the overhyped cannabis tickers and several tech names so far this year, with the best performing Canadian utility returning a staggering 114.6% in total investment gains so far this year.
Several names stand out for the year-to-date capital gains and income returns they have rewarded their investors with, but I will discuss the best three performers, in reverse order.
Number 3: TransAlta Corporation
In third place, so far, is power generation giant TransAlta Corp. (TSX:TA)(NYSE:TAC). The stock has returned 59.57% in capital gains while its dividend has topped the year-to-date total investment gains to nearly 62%.
TransAlta owns, operates, and develops a diverse fleet of electrical power generation assets in Canada, the U.S., and Australia, and the company is making good progress in moving away from predominantly coal-powered generation to cleaner, renewable sources.
Third-quarter earnings impressed as the company reported a 21% increase in free cash flow (FCF) as compared to last year and management increased the lower end of its full year FCF guidance by 11% to $300–$340 million. Operations, maintenance, and administration costs were 5% lower for the quarter and 7% down for the first nine months of 2019.
Now, that’s some good execution, but the 1.8% dividend yield today isn’t that attractive.
Number 2: Brookfield Renewable Partners
In second place is another power generation giant, Brookfield Renewable Partners L.P. (TSX:BEP.UN)(NYSE:BEP), which has a strong portfolio of hydroelectric, wind, solar, and storage facilities in North America, South America, Europe, and Asia with over 18,000 megawatts of installed capacity and a strong 8,000 megawatt development pipeline that could power cash flow growth.
The limited partnership has delivered a great 74.85% in share price gains and its respectable dividend increased the total return to 83.21% year to date.
This is yet another low beta stock, with a beta coefficient of 0.59. That may not be as volatile as the main TSX, so offers a relatively safe savings investment option. There’s also a juicy 4.12% dividend yield from the U.S. dollar denominated quarterly payout that management is keen to increase by a targeted 5% to 9% annually.
For your information, the LP is morphing into a traditional corporation, Brookfield Renewable Corporation, and shares could attract a new class of investors who were not comfortable holding partnership units.
Number 1: AltaGas Canada
The best utility stock on the TSX so far this year is AltaGas Canada (TSX:ACI) which spun out of parent AltaGas Ltd. ACI has been one of my favourite income plays in 2019 and I recommended it twice this year.
The recently listed utility has three natural gas distribution facilities serving Alberta, British Columbia, and Nova Scotia that provide about 88% of the company’s cash flows, with the balance coming from renewable energy assets.
Shares have returned 107% in capital gains so far and the increased dividend payout has topped the outperforming return to a staggering 114.6%.
This promises to be a long-term dividend growth play and management has already increased the quarterly dividend twice since shares were listed during the fourth quarter of last year. Some de-risking developments and a growing rate base supported by an upsized capital expenditure plan that is largely self-funded could help to propel free cash flow growth and power future dividend growth.
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Fool contributor Brian Paradza has no position in any of the stocks mentioned. The Motley Fool recommends ALTAGAS LTD. and Brookfield Renewable Partners.