TFSA Investors: Steady Utility Stocks to Buy Now and Cash In for Life

Utilities stocks like Fortis Inc (TSX:FTS)(NYSE:FTS) offer high yields.

| More on:
Electricity pylons against a sunset

Image source: Getty Images

Utility stock: what’s not to love about them?

Among the most stable dividend stocks out there, they offer you much of the passive income that bank stocks do but without the threat of a 2008-style financial meltdown.

Sure, utilities are boring, but that’s exactly what makes them so valuable. Because of their “slow and steady” growth, utilities tend to deliver predictable returns and reliable dividends.

That doesn’t mean you can’t go wrong with utility stocks. Enron, the culprit of history’s biggest accounting fraud, was a utility. Its investors didn’t exactly get great returns. In order to invest profitably in utilities, you need to know how to analyze them — either that or buy a diversified utilities ETF. In this article, I will explore three utilities stocks that offer significant dividend income.


Fortis (TSX:FTS)(NYSE:FTS) is a St. John’s based utility company. It offers electricity throughout Canada, the U.S. and the Caribbean. 99% of its assets are regulated utilities — a good thing because regulations provide high barriers to entry.

Fortis is famous for having raised its dividend every single year for the last 48 years. Most utilities are pretty consistent dividend payers, but not all of them have such consistent dividend growth. Fortis has both. Its goal is to raise the payout by about 6% a year for the next five years, which seems doable.

The company’s current payout ratio (percentage of earnings paid as dividends) is 79%, which is a little high but not extremely high. Its annual growth in earnings per share has only been 2.6% per year over the last five years. Therefore, the dividend-growth goal appears to be a little ahead of the growth in the actual business. Fortis looks pretty good today, but be mindful of the payout ratio potentially rising too high in the future.


Algonquin Power & Utilities (TSX:AQN)(NYSE:AQN) is a Canadian renewable energy utility that has a lot of things going for it. First, it’s relatively small, which means it has a lot of room to grow. Second, its historical growth has been off the charts for a utility: revenue has grown at 16.7% per year, and earnings have grown at 12.6% per year over the last five years. Third, it’s almost entirely focused on renewable energy, especially wind and solar, so it’s less likely than other utilities are to face climate change-related issues.

One potential problem with AQN is severely negative earnings growth in the last year. For the trailing 12-month period, earnings declined 85%. That appears concerning, but remember that the five-year trend in earnings is still very strong. Also, the free cash flow (cash left to pay shareholders) actually improved in the last 12 months, so it’s not all bad on the earnings front.

Duke Energy

Last but not least, we have Duke Energy (NYSE:DUK). This is a U.S. natural gas and nuclear utility that is well positioned for the future of energy. Like many utilities, Duke is a pretty slow-growth company. Its earnings have only grown by 4.5% per year over five years, halfway between Fortis and Algonquin. On the bright side, it is highly profitable, with a 15% profit margin (i.e., net income as percentage of revenue).

DUK’s growth isn’t bad, and its profitability is very good. However, the main reason for being interested in Duke isn’t financials, it’s what the company does. Duke is partially a nuclear utility, and nuclear energy is rapidly being embraced by the world as a solution to climate change. Renewables are popular, but they only supply 5% of the world’s energy. Nuclear is a zero-carbon energy source that can power an entire grid. Duke Energy is already operating 11 nuclear power plants across North and South Carolina, and it has never suffered a serious safety incident. That makes it a green energy company with a proven track record.

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 Andrew Button has no position in any of the stocks mentioned. The Motley Fool recommends Duke Energy and FORTIS INC.

More on Dividend Stocks

money cash dividends
Dividend Stocks

Want Passive Income: Hold This Canadian Dividend Growth Stock Forever

Passive income seeking investors can now buy shares of dividend-paying blue-chip companies at a discount, such as Brookfield Infrastructure.

Read more »

Senior Couple Walking With Pet Bulldog In Countryside
Dividend Stocks

Retirees: 2 On-Sale TSX Dividend Stocks to Buy Now for Passive Income

These top TSX dividend stocks now offer 6% yields.

Read more »

Payday ringed on a calendar
Dividend Stocks

New Investors: The 3 Best TSX Dividend Stocks for Monthly Cash

New investors looking for monthly dividend cash are in luck! Here are three attractive Canadian dividend stocks for growth and…

Read more »

A worker gives a business presentation.
Dividend Stocks

3 Dividend Stocks You Can Safely Hold for Decades

Here are three of the safest Canadian dividend stocks you can buy right now to hold for decades.

Read more »

Red siren flashing
Dividend Stocks

Buy Alert: This Energy Stock Is Unstoppable After Strong Results

Tourmaline Oil (TSX:TOU) beat earnings and looks unstoppable.

Read more »

Female hand holding piggy bank. Save money and financial investment
Dividend Stocks

2 Safe Dividend Stocks to Beat Inflation

Canadian investors, young and old alike, can cope with or even beat inflation by owning two safe dividend stocks.

Read more »

Dollar symbol and Canadian flag on keyboard
Dividend Stocks

2 Canadian Dividend Stocks (With +6% Yields) You’ll Regret Not Buying at These Prices

TSX dividend stocks such as TC Energy and TransAlta Renewable are well poised to deliver consistent returns to long-term investors.

Read more »

Businessman holding tablet and showing a growing virtual hologram of statistics, graph and chart with arrow up on dark background. Stock market. Business growth, planning and strategy concept
Dividend Stocks

2 TSX Stocks With Market-Beating Potential

Even in the current economic environment, long-term investors have a great chance of beating the market. Stocks like CN Rail…

Read more »