Utility companies meet people’s basic needs, such as water, electricity, and natural gas. So, economic cycles will not have much impact on their financials. Amid stable and predictable financials, these companies pay dividends consistently at a healthier rate. Given their defensive nature and regular payouts, utility companies can stabilize investors’ portfolios. Considering these factors, you can buy the following three top Canadian utility stocks to boost your passive income.
Fortis
Through its 10 diversified operations, Fortis (TSX: FTS) serves around 3.4 million customers across Canada, the United States, and three Caribbean countries. Approximately 93% of its assets are involved in low-risk and regulated transmission and distribution businesses, thus making its financials stable and predictable. Supported by these stable operations, the company has delivered impressive returns of 158% over the last 10 years at a CAGR (compound annual growth rate) of 9.9%.
Meanwhile, Fortis has adopted a $22.3 billion capital-investment plan, which could grow its rate base at an annualized rate of 6.2% through 2027. The rate base expansion could boost its financials in the coming years. So, the company, which has raised its dividend for 49 consecutive years, hopes to increase its dividend by 4-6% annually through 2027. It also offers a healthy forward yield of 3.92%.
Meanwhile, Fortis, which is involved in a highly capital-intensive business, has lost close to 12% of its stock value compared to last yearâs highs amid the rising interest rates. The correction has dragged its price-to-book multiple down to 1.4, making it an attractive buy.
Canadian Utilities
Canadian Utilities (TSX: CU) is a diversified energy infrastructure company involved in the natural gas and electricity transmission and distribution business, power production and storage business, and electricity and natural gas retail sales business. With a substantial percentage of its earnings coming from low-risk utilities, the company boosts an excellent long-term track record of adjusted earnings growth through various economic cycles.
Supported by its solid performances, the company has raised its dividends consistently for the last 51 years, with its yield currently at 4.95%. Meanwhile, the companyâs management expects to grow its rate base at an annualized rate of 2% through 2025. Through its operational excellence, the company has managed to lower its natural gas distribution costs by 29% per customer since 2015, while its electricity distribution expenses per kilometre have decreased by 11%. So, I expect Canadian Utilities to continue with its dividend growth.
Algonquin Power & Utilities
My final pick is Algonquin Power & Utilities (TSX: AQN), which has witnessed substantial selling over the last few months, with its stock price correcting around 38% from its 52-week high. Its weak quarterly performances amid higher interest rates have weighed on the companyâs stock price. However, the company has taken appropriate initiatives, such as non-core asset sales, lower capital intensity, and reduction of its quarterly dividend by around 40%, to strengthen its financial position. Despite slashing its dividend, the company offers a healthy dividend yield of 5%.
AQN has planned to make a capital investment of $1 billion this year, with $700 million on low-risk utility assets and the remaining $300 million on renewable energy facilities. Along with these investments, its deleveraging initiatives could drive its financials, thus allowing the company to pay its dividend at a healthier rate. The steep decline in AQN’s stock price has dragged its price-to-book multiple down to 1.1, making it an attractive buy.
