2 TSX Utility Stocks to Buy and 1 to Avoid in March 2023

Utility stocks are strong investments during a downturn, but not all of them. Consider these points before just buying any of them.

Amy Legate-Wolfe

Amy became interested in investing in 2018 after having her first daughter. After receiving a masters degree in journalism from Western University, she became frustrated that the finance industry remained a confusing place for Canadians like her: new parents, millennials, and other young people who needed to understand their finances. Now, Amy focuses on tech companies and renewable energy for growth opportunities, coupling that with long-term investing strategies and equities. She also provides investors with a daily newsletter, Canada Stock Digest, for daily market updates. Before joining Motley Fool Canada, she wrote for major news organizations including HuffPost, CTVNews.ca, and CBC. When she’s not researching investing strategies, Amy’s time is pretty much monopolized by her two wild daughters, but in what little spare time she has she loves to do yoga, go on walks with her dog, and travel with her husband. Follow Amy on LinkedIn and Canada Stock Digest. Favorite Investment Quote: “October: This is one of the particularly dangerous months to speculate in stocks. The others are July, January, September, April, November, May, March, June, December, August and February.” – Mark Twain

Published March 13, 2023 8:30 am EDT

Utility stocks are some of the best buys investors can find these days. Ahead of a potential recession, Canadians can look forward to steady revenue coming in. Or at least, in most cases.

Today I’m going to cover two utility stocks on the TSX today that remain solid buys. However, there’s another I would avoid at least in March 2023.

The sun sets behind a power source — Source: Getty Images

Buy: Canadian Utilities

If you’re looking for long-term passive income, go with the only Dividend King on the TSX today. Canadian Utilities (TSX:CU) continues to have 50 years of dividend increases under its belt. So, not only can you look forward to more returns but more growth in passive income as well.

Canadian Utilities stock climbed during the early days of the economic downturn. It has since fallen back and is up just 2% in the last year alone. So, it’s a great time to buy during this dip, knowing full well it will recover quite soon.

Meanwhile, it’s near value territory trading at 17.22 times earnings. You can also lock up a dividend yield of 5.06% among your other utility stocks.

Buy: Hydro One

While it may not have the years behind it, Hydro One (TSX:H) is another solid company among utility stocks that I would consider. Hydro One stock continues to be the choice of Ontario residents for their utilities. And there are a few benefits to this.

First off, Ontario is the most populated province in the country. The fact that Hydro One stock, therefore, powers most of the province is a great reason to buy. However, another great reason is that it relies mainly on renewable energy through hydro electricity. This allows you to be sure that even during the energy transition, your investments will remain safe.

Meanwhile, Hydro One stock is one of the utility stocks on the TSX today trading up 13.61% in the last year, providing protection and growth. Then you can bring in an additional dividend yield at 3.17%.

Avoid: Algonquin Power

I would continue to avoid Algonquin Power & Utilities (TSX:AQN) among utility stocks for now. The company was forced to cut back its dividend in the recent past, thereby ending its Dividend Aristocrat status. It also remains down by about 40% in the last year, plummeting last November.

Has it grown in 2023? Sure, up by about 20% since the beginning of the year. But I would still avoid it, especially after earnings missed estimates by a mile during its last quarter.

And even though its dividend yield looks tempting at 9.19% as of writing, it cut it recently, and that could happen yet again. So, avoid this stock until analysts become more confident in its future.

Bottom line

Utility stocks are some of the best bets on the TSX today if you’re looking for dividend income and safety. But not all of them are the same. Hydro One stock and Canadian Utilities stock both continue to look like strong options. But Algonquin stock continues to be far too risky for those seeking strength during an economic downturn.