As uncertainty looms large, investors must adapt to invest in a volatile market. However, investing in such a market is tough. The sharp rise or fall in the stock prices often leads to a knee-jerk reaction, resulting in significant losses.
Undoubtedly, there is a high degree of risk with equity investments during a volatile market. However, that doesn’t imply that investing in equities isn’t worthwhile. Thanks to the few businesses which are relatively insulated, investors don’t necessarily have to be a big risk-taker, yet they can earn steady income amid volatility.
If you haven’t already guessed, I’m talking about utility stocks. Utility companies continue to do well irrespective of economic cycles. Thanks to their highly contracted business, they generate reliable revenues and consistently pay higher dividends.
Fortis is a diversified utility company that generates 99% of its earnings from regulated utility business. The highly regulated business implies that the company’s financial performance remains relatively immune to the economic cycles.
The company’s stable and recurring cash flows enable it to boost investors’ returns through higher dividends. Investors should note that Fortis has consistently raised its dividends over the last 46 years, which is encouraging. Moreover, it currently offers a respectable dividend yield of 3.7%.
Fortis is poised to gain from rate base growth. Despite the short-term hiccups from the COVID-19 outbreak, the company’s long-term outlook remains unchanged. Fortis expects its rate base to increase from $28.0 billion in 2019 to $34.5 billion by 2022, implying a CAGR of 7.2%.
Meanwhile, Fortis projects its dividend to grow at an average annual rate of 6% in the coming years.
Fortis maintains a strong balance sheet with ample liquidity. Moreover, the company’s capex plans are moving ahead as planned. The company’s low-risk business model and predictable cash flows make Fortis stock a perfect defensive income play.
Algonquin Power & Utilities
Similar to Fortis, Algonquin Power & Utilities owns and operates diversified utility assets. The company continues to impress with its key financial performance metrics with consistent growth in EBITDA, net income, and funds from operations. The steady increase in earnings and cash flows support the company’s dividend growth.
In the most recent quarter, Algonquin Power & Utilities reported a 5% increase in its adjusted EBITDA. Meanwhile, adjusted net income jumped 10% and adjusted funds from operations marked 3% growth. Investors should note that the company is a Dividend Aristocrat and has increased its dividends in the last 10 years.
Recently, the company announced a 10% increase in its annual dividend. Moreover, it currently offers a healthy dividend yield of 4.7%.
The company’s regulated utility business generates predictable earnings. Meanwhile, the renewables business is backed by long-term power purchase agreements, with an average life of 15 years.
The company’s diversified revenue streams bode well for future growth. Meanwhile, its defensive utilities and renewables businesses make Algonquin Power & Utilities a safe stock.
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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 Sneha Nahata has no position in any of the stocks mentioned.