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.

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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.

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.

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 Amy Legate-Wolfe has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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