2 Utilities Stocks With Sought-After Stability

Here’s why Fortis and Hydro One are two top utilities stocks long-term investors may want to consider right now.

| More on:
The sun sets behind a power source

Source: Getty Images

Over the last three years, earnings for companies in the utility industry have fallen by 3.1% per year. Meanwhile, these companies’ revenues have increased by 14% per year.

This means that, while sales are increasing, either the cost of doing business or the level of investment back into businesses has increased, resulting in lower profits.

However, when compared to other sectors, Canadian utility companies typically produce more consistent and predictable revenues. As a result, the industry is less volatile. Several Canadian utility companies offer enticing dividend yields and have been able to increase dividend payouts for decades. Here are two such stocks to look out for in 2023.

Fortis 

Fortis (TSX:FTS) has ascended from humble beginnings as Newfoundland Light & Power Company to become Canada’s largest utility company, owning 10 locally operated gas and electric utilities across Canada, the United States, and the Caribbean.

FTS announced that it would pay a dividend of $0.565 per share on Dec. 1, an increase from the previous year’s comparable dividend. The payment raises the dividend yield to 4.2%, which aligns with the industry average.

The annual payment was $1.20 a share in 2012, almost half the recent full-year payment of $2.26 per share. This implies that the company’s distributions increased at a yearly rate of about 6.5% during that time period. Companies like this can be extremely valuable in the long run if the current growth rate is maintained.

FTS shares currently offer a 4% dividend yield, which has increased for 49 consecutive years. Plans to maintain a dividend compound growth rate of 4% to 6% over the next five years are well sustained by the company’s robust $22 billion pipeline of capital expansion projects.

Hydro One 

Another stable dividend payer, Hydro One has been paying a consistent and growing dividend since 2016. The board of directors of Hydro One (TSX: H) announced a $0.2796 per share quarterly cash dividend for its common shareholders, paid on December 30th to shareholders of record on December 14th.

The utility recently released its third-quarter report. Its revenue of $2 billion fell 6.1% short of analyst expectations. Though earnings per share (EPS) of $0.51 outperformed analyst expectations by 5.2%. Analysts expect revenue to grow 2.2% per year on average over the next 3 years, compared to a 4.6% increase in the Electric Utilities industry in North America.

A low dividend payout ratio and growing asset base can well support future dividend payments. Notably, Hydro One announced a Sustainable Financing Framework, an original for a Canadian utility. The framework enables Hydro One, as well as its subsidiaries, to issue sustainable financing instruments (like green bonds). The net profits will be directed towards investments in eligible green energy and social project categories.

On January 24th, Hydro One began work on a new tunnel that will run 85 feet below ground in downtown Toronto, starting from Esplanade to Bay and Dundas. The tunnel will be about the size of three park benches and house new transmission cables that will replace cables serving Toronto’s downtown core since the 1950s.

Bottom line 

Considering the current market conditions, it is wise to invest in stocks that have the right fundamentals to maneuver through the turbulences rather than simply offering higher returns. 

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 Chris MacDonald has no position in any of the stocks mentioned. The Motley Fool recommends Fortis. The Motley Fool has a disclosure policy.

More on Energy Stocks

oil and gas pipeline
Energy Stocks

TC Energy Stock Is Starting to Get Ridiculously Oversold

TC Energy (TSX:TRP) stock is one of those deep-value dividend plays for the next decade and beyond.

Read more »

A worker overlooks an oil refinery plant.
Energy Stocks

3 Top Energy Stocks With High Dividends

Investors looking for big dividends in the energy sector can explore these top energy stocks.

Read more »

Dollar symbol and Canadian flag on keyboard
Energy Stocks

3 Canadian Stocks You Can Confidently Buy Now and Hold Forever

You don’t need to think twice about loading up on these three top stocks.

Read more »

Aerial view of a wind farm
Energy Stocks

Is There Any Hope for Brookfield Renewable Stock?

Brookfield Renewable stock (TSX:BEP.UN) may be going through a rough patch, but recent moves suggest more is yet to come.

Read more »

edit Balloon shaped as a heart
Energy Stocks

If You Like Enbridge Stock, Then You’ll Love These High-Yield Energy Stocks

Do you like Enbridge (TSX:ENB) stock for its dividend but not the share growth? Consider these two top monthly payers…

Read more »

A solar cell panel generates power in a country mountain landscape.
Energy Stocks

Clean Energy Play: Is Brookfield Renewable a Good Stock for a TFSA?

Add this top renewable energy stock to your self-directed TFSA portfolio for significant long-term and tax-free wealth growth.

Read more »

grow dividends
Top TSX Stocks

Enbridge Stock Pays a Massive 7 Percent Dividend and Now is a Great Time to Buy  

Have you considered buying Enbridge stock lately? If not, you may want to buy this long-term gem to start earning…

Read more »

edit Woman calculating figures next to a laptop
Energy Stocks

Better Buy: Cameco Stock or Brookfield Renewable Stock?

If you're looking for a strong future, clean energy is the answer -- especially if you're looking at a strong…

Read more »