Are you looking to invest in utilities stocks? If so, you haven’t picked the worst asset class by any stretch of the imagination. The rising interest rates we’re seeing this year aren’t good for utilities’ profits – these companies usually have massive amounts of debt. However, these stocks typically aren’t overly expensive and pay large dividends. Provided that that their debt level isn’t completely in the stratosphere, they can be good buys – even in periods when interest rates are high. In this article, I will explore three TSX utilities stocks that could be worthy buys for your TFSA.
Fortis
Fortis Inc (TSX: FTS) is a Canadian utility stock that is doing reasonably well this year. In its most recent quarter, it delivered:
- $370 million in net income, up 12.8%.
- $0.72 in basic earnings per share, up 14%.
That was a pretty good showing. Even with rising interest rates, Fortis managed to increase its profit, which not all utilities could do last quarter. The company managed positive growth in full year earnings as well.
What else does Fortis have going for it, apart from having put a good quarter behind it?
For one thing, it has a great dividend track record. It has increased its dividend every single year for the last 49 years. For another thing, its balance sheet, although pretty heavy on debt, isn’t so burdened that it’s a real structural concern. For these two reasons, FTS is a worthy pick for income-oriented investors.
Emera
Emera Corp (TSX: EMA) is another Canadian utility like Fortis that managed to pull off positive earnings growth in 2022. For the year, it earned $7.6 billion in revenue, up 31%, and $1 billion in profit, up 80%. That was a pretty strong showing for 2022, a year when many companies’ earnings declined. Emera’s balance sheet is fairly healthy, too. Its debt-to-equity ratio (i.e., debt divided by the value of what the company owns, net of debt), is 1.3. That’s high for stocks as a whole but fairly modest for a utility. EMA is more indebted than your typical retailer or tech company, but as a regulated utility, it enjoys a lot of protection from competition. So, it can do well even with all the debt.
Canadian Utilities
Canadian Utilities (TSX: CU) is, as its name implies, a Canadian utility company. It provides electricity, natural gas, and water. It has a natural gas storage business, which makes it an energy infrastructure company as well as a utility. At today’s prices, CU stock yields 4.94%, which is extremely high. Invest $100,000 into CU stock and you’ll get $4,940 in passive income back each year, assuming the dividend neither grows nor shrinks. Much like FTS and EMA, CU’s earnings increased in the most recent 12-month period – though in this company’s case, we can’t say for sure that earnings increased “in 2022” as the fourth-quarter earnings release isn’t out yet. It will be coming out on March 1, so stay tuned – we’ll soon get to see if CU bagged a winning 2022 like FTS and EMA did.
