2022 was quite a shock to markets. Although a lot of the economic problems had been building for some time, especially after the pandemic, the rapid increase in the inflation rate and Russia’s invasion of Ukraine impacted markets much more than many expected. And now, with the economy facing significant headwinds, many expect the climate to get worse before it gets better.
That uncertainty, as well as the expectation that the worsening economy will impact many companies, is leading to heightened risk in the stock market, making it difficult for investors to decide what the best stocks are to buy in 2023.
The market environment we saw in 2022 and should continue to see in 2023 reminds us why it’s so important to own stocks that are high-quality companies that we have the confidence to own for the long term.
It makes it much easier not to panic and sell when your investments temporarily lose value, as the market sells off.
This uncertain economic environment also reminds us why it’s so important to diversify our investments. That way, in addition to buying higher potential and faster-growing stocks, we also own highly reliable and defensive stocks that experience less volatility, such as utilities.
Source: Getty Images
Why utility stocks are some of the best to buy in 2023
With such an uncertain economic and market environment, there are three main reasons why utility stocks are some of the best investments to buy in 2023.
First off, utilities are excellent defensive businesses that can add stability to your portfolio. These stocks offer essential services, plus they are also regulated by governments. This gives utility stocks highly predictable revenue and cash flow, making them some of the safest investments you can buy in this higher-risk environment.
Another reason utility stocks are some of the best to buy now is that interest rates look like they’re about to peak. Rising interest rates can impact utility stocks for two reasons. One, it drives up yields in the market, which makes the price of utility stocks cheaper. In addition, it can impact profitability by increasing the interest expenses of these stocks.
But with inflation showing signs of cooling, and central banks slowing their pace of interest rate increases in recent months, now could be an ideal time to buy utility stocks.
The third reason utility stocks are some of the best to buy now is that they are high-quality dividend-growth stocks that make for excellent long-term investments.
You never want to buy stocks only for a specific market environment. Buying stocks for the short term increases the risk of the investment and forces investors to try and time the market, which is never easy.
Instead, you’ll want to buy stocks that you can buy and hold for years. Although utility stocks are ideal in this market environment, they are also top stocks to buy, because they are businesses that you can own for the long haul.
Two of the top utilities for investors to consider today
There are certainly many reasons to buy high-quality utility stocks, especially in 2023. And while several utility stocks will see lower volatility than the market and offer attractive yields, Fortis (TSX:FTS) and Emera (TSX:EMA) are two of the best to buy.
Fortis is a massive company with a market cap of more than $26 billion. Fortis has 10 utility operations in different jurisdictions, offering gas and utility services to roughly 3.4 million customers.
This significant diversification helps to decrease risk even more and is one of the main reasons why Fortis is a Canadian Dividend Aristocrat with a dividend-growth streak of an incredible 48 straight years. As of Monday’s close, Fortis stock has a yield of roughly 4.1%.
Emera is another impressive utility with operations in six different countries across North America. It predominantly offers electricity services and is also, unsurprisingly, a Dividend Aristocrat due to its consistent growth. Furthermore, it currently offers a yield of roughly 5.1%.
If you’re looking to shore up your portfolio ahead of an uncertain 2023, utility stocks like Fortis and Emera are some of the best you can buy.
