The Motley Fool

Here Are 2 Top Dividend Stocks to Buy and Forget in March

If you’re thinking about buying utilities after the market’s recent run, you’re on the right track, as lowly-correlated dividend stocks can help dampen your downside to give you a market-beating edge in what’s starting to look like a risk-on year.

Now that yields are becoming scarce, with abysmal rates provided by risk-free debt instruments, the hunt for yield is getting harder, and the price of admission to many market darling utility stocks has gone up. While utility stocks can buoy your portfolio when the tides come in, you can still stand to get hurt if your entry point is too high. Valuation always matters, and there are no exceptions. If you end up overpaying for stock, you can still get hurt, even if you’re investing in the most stable utility out there.

This piece will have a look at two utility stocks that I still see as quite cheap given their sought-after bond-proxy traits. So, without further ado, consider Fortis (TSX:FTS)(NYSE:FTS) and Canadian Utilities (TSX:CU) if you want to get a good deal to a name that can act as shocks for your portfolio.

Fortis 

Fortis is the epitome of a bond proxy. And although the dividend, currently yielding 3.3%, isn’t as rich after its recent run, I still think the name could face further multiple expansion, as fixed-income investors throw in the towel on their bond investments and look to the more rewarding bond proxies like Fortis.

The company not only has one of the most stable cash flow streams as a result of its highly regulated operations, but it also has exceptional stewards that are driving Fortis to grow at a quicker rate than most other highly regulated utilities that lack exposure to the higher-growth U.S. market. Fortis has a growing foundation south of the border, and it’ll allow Fortis to nearly guarantee 5-6% in annual dividend hikes to its investors.

In an era of rock-bottom interest rates, it makes a heck of a lot more sense to invest in a utility with a 3.3% yield that can grow at a 5-6% rate for an indefinite period than a 2.5%-yielding short-term government bond or, goodness forbid, a long-term bond fund that’s arguably far riskier than a bond proxy that’s the calibre of Fortis.

Fortis stock isn’t cheap at this juncture at 11.4 times EV/EBITDA and 9.6 times cash flow, but it’s certainly not expensive given the environment we’re in. I say buy Fortis and just forget about it. It’s a premier utility stock that’s hard to beat.

Canadian Utilities

If you’re in the market for an even cheaper utility stock with a larger dividend yield, Canadian Utilities (TSX:CU) may be better suited for your portfolio.

The stock currently sports a 4.1% dividend yield and is on the verge of breaking out past its $41-42 long-term ceiling of resistance. If you’re a technician, there’s no doubt that Canadian Utilities looks to be a more timely stock at this juncture, and if you’re all about the fundamentals, the stock is also too good to pass on in the low $40 range.

At the time of writing, CU stock trades at a mere 9.8 times EV/EBITDA and 8.6 times cash flow. And with one of the longest dividend-growth streaks in Canada (currently at 48 years), Canadian Utilities is within two years of entering the exclusive Dividend King club, making the name a more rewarding and an arguably “safer” bet than any “risk-free” investment out there.

Just Released! 5 Stocks Under $49 (FREE REPORT)

Motley Fool Canada's market-beating team has just released a brand-new FREE report revealing 5 "dirt cheap" stocks that you can buy today for under $49 a share.
Our team thinks these 5 stocks are critically undervalued, but more importantly, could potentially make Canadian investors who act quickly a fortune.
Don't miss out! Simply click the link below to grab your free copy and discover all 5 of these stocks now.

Claim your FREE 5-stock report now!

Fool contributor Joey Frenette owns shares of FORTIS INC.

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss an important event.

Iain Butler and the Stock Advisor Canada team only publish their new “buy alerts” twice a month, and only to an exclusively small group.

This is your chance to get in early on what could prove to be very special investment advice.

Enter your email address below to get started now, and join the other thousands of Canadians who have already signed up for their chance to get the market-beating advice from Stock Advisor Canada.

I consent to receiving information from The Motley Fool via email, direct mail, and occasional special offer phone calls. I understand I can unsubscribe from these updates at any time. Please read the Privacy Statement and Terms of Service for more information.