Top 3 Utility Stocks for Stability and Consistent Income

These utility stocks could continue to return cash, irrespective of the volatility in the market.

| More on:

Amid the current volatility, utility stocks can be a valuable addition to one’s portfolio to diversify risk and generate consistent cash. The reason is that these corporations are known for generating predictable cash flows due to their rate-regulated businesses. Further, their low-risk business and high-quality earnings base support their payouts and make them less volatile. 

Against this backdrop, let’s delve deeper into four utility stocks that are relatively immune to the wild market swings and have the potential to consistently enhance shareholders’ value through higher dividend payments.

Fortis 

Speaking of safe stocks to buyFortis (TSX:FTS)(NYSE:FTS) crops up first in my mind. Fortis’s high-quality portfolio includes 10 regulated utility businesses that account for almost all of its earnings. Thanks to its conservative business mix and predictable cash flows, Fortis stock has consistently returned cash to its shareholders. 

It’s worth mentioning that Fortis has increased its dividend for 48 years, which highlights the strength of its cash flows. Moreover, it projects a 6% average annual dividend growth through 2025, which is positive. 

Fortis expects its rate base to increase from $31.1 billion in 2021 to $41.6 billion in 2026. This will expand its high-quality earnings base and support future payouts. Moreover, its growing renewable power generation capacity and business investments bode well for growth. Fortis stock has performed better than the broader market averages this year and yields 3.3% at current price levels.

Canadian Utilities

Within the utility sector, one could consider buying the shares of Canadian Utilities (TSX:CU). With its history of 50 consecutive years of dividend growth, Canadian Utilities stock is one of the top investments to generate cash irrespective of the volatility in the market. 

Canadian Utilities’s continued investments in the regulated and contracted assets drive its earnings base and position it well to enhance shareholders’ value through dividend increases. Overall, its strong dividend-growth history, conservative business, continued rate base growth, energy transition opportunities, and new growth platforms will likely drive its future payouts. At current price levels, Canadian Utilities offers a yield of 4.4%. 

Algonquin Power & Utilities

Like its peers, Algonquin Power & Utilities (TSX:AQN)(NYSE:AQN) operates a low-risk business and has a solid track record of dividend payments. Its rate-regulated assets and long-term contractual arrangements drive predictable cash flows that easily cover its payouts. Notably, Algonquin Power & Utilities raised its dividend for 11 years, while its dividend has grown at a CAGR of 10%. 

Algonquin Power’s solid capital program and strong investment pipeline position it well to deliver solid earnings and dividend growth in the future. The company projects its rate base to increase at a CAGR of nearly 15% through 2026, which is positive. 

Thanks to its growing rate base and opportunities in the renewables segment, Algonquin Power expects its adjusted earnings to grow at a CAGR of 7-9% through 2026. This implies that its future dividend could grow at a similar pace. Further, Algonquin Power expects its target payout ratio of 80-90% to be sustainable in the long term. Currently, Algonquin Power stock offers a dividend yield of 5.1%. 

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. The Motley Fool recommends FORTIS INC.

More on Dividend Stocks

profit rises over time
Dividend Stocks

A Dividend Giant I’d Buy Over TD Stock Right Now

TD stock has long been one of the top dividend stocks for investors to consider, but that's simply no longer…

Read more »

analyze data
Dividend Stocks

Top Financial Sector Stocks for Canadian Investors in 2025

From undervalued to powerfully bullish, quite a few financial stocks might be promising prospects for the coming year.

Read more »

Canada national flag waving in wind on clear day
Dividend Stocks

3 TFSA Red Flags Every Canadian Investor Should Know

Day trading in a TFSA is a red flag. Hold index funds like the Vanguard S&P 500 Index Fund (TSX:VFV)…

Read more »

Paper Canadian currency of various denominations
Dividend Stocks

1 Magnificent Canadian Stock Down 15% to Buy and Hold Forever

Magna stock has had a rough few years, but with shares down 15% in the last year (though it's recently…

Read more »

Man holds Canadian dollars in differing amounts
Dividend Stocks

Earn Steady Monthly Income With These 2 Rock-Solid Dividend Stocks

Despite looming economic and geopolitical uncertainties, these two Canadian monthly dividend stocks could help you generate reliable income in 2025…

Read more »

A worker gives a business presentation.
Dividend Stocks

2024’s Top Canadian Dividend Stocks to Hold Into 2025

These top Canadian dividend stocks are worth holding into 2025 to generate steady and growing passive income.

Read more »

A train passes Morant's curve in Banff National Park in the Canadian Rockies.
Dividend Stocks

1 Magnificent Canadian Stock Down 12% to Buy and Hold Forever

This top stock may be down 12% right now, but don't see that as a problem. See it as a…

Read more »

Confused person shrugging
Dividend Stocks

Passive Income: How Much Do You Need to Invest to Make $625 Per Month?

This retirement passive-income stock proves why investors need to always take into consideration not just dividends but returns as well.

Read more »