Utility stocks are an entirely different breed compared with high-growth stocks. Companies in the utility sector are fantastic investments, too, if not better than bonds. The features are similar, but they beat fixed-income investments in terms of yield.
Canadian Utilities (TSX:CU) and Fortis (TSX:FTS)(NYSE:FTS) receive special treatment from risk-averse investors and retirees. Both companies are known as dividend all-stars. With growth streaks of nearly five decades, the likelihood of not receiving dividends is low.
Aside from the bond-like attributes, Canadian Utilities and Fortis are defensive gems because of the recession-resistant nature of the respective businesses. You can keep them as long as you want and have an income stream forever.
Longest dividend-growth streak
If you don’t have a high-risk appetite, Canadian Utilities is the right investment for you. You can build wealth over the long term and realize the power of compounding interest.
The supreme advantage of a utility company that generates, transmits, and distributes electricity is the protection of government regulations. Since commencing operations in 1927, Canadian Utilities is a dominant force in Canada, Australia, and Mexico. There is hardly a threat from competition because of established arrangements.
Canadian Utilities can easily afford to pay dividends, because it generates substantial cash year in and year out. Usually, the pricing of electricity or energy charges are commensurate with the amount spent on building the infrastructure and fixed assets.
With its current yield of 4.15%, your $100,000 savings can grow to $338,671.17 in a 30-year holding period. Historically, CU has returned 908.57% in the past 20 years. This diversified company should operate for another 100 years or more.
Fortis is 42 years older than Canadian Utilities. As a regulated electric company, you can say it is financing the operations of the governments it serves. Fortis built the gas-fired and hydro-electric plants as well as the electricity distribution system it owns and operates today.
This $27.08 billion company then charges the governments of Canada, the U.S., and Caribbean countries an established based rate for the electricity it delivers. The company serves over one million residential, commercial, and industrial customers in British Colombia alone.
Ten utility companies are under Fortis’s supervision, but the list of assets (99% are regulated). Given that the pricing is guaranteed, customers are guaranteed, and demand for electricity and related services are unfailing, you’re investing in a company that is likely to post profits even in an economic downturn.
Fortis is offering a 3.28% dividend at present. A $100,000 capital in a 30-year investment horizon would be worth $263,321.84. In the past two decades, the total return from this utility stock is $1,581.77.
The business of regulated utility companies is easy to understand. Ordinary retail investors do not need to perform a detailed evaluation and analysis. But there is still a certain amount of risk. Many stocks could fall hard during bear markets, market correction, and especially in a recession.
The reason why there’s a possibility of earning forever from Canadian Utilities and Fortis is that both are classic defensive investments. It’s better to own these utility firms than stocks offering outsized returns but more volatility.
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Fool contributor Christopher Liew has no position in any of the stocks mentioned.