These top Canadian utility stocks can help power stable growth in your diversified portfolio, thanks to their reliable dividends and track record of growth from excellent management execution. Brookfield Infrastructure Partners (TSX:BIP.UN) and Brookfield Renewable Partners (TSX:BEP.UN) can light up your investments in the darkest times as they pay decent yields while increasing their cash distributions over time. Let’s take a closer look.
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Outperforming stocks
Both dividend stocks have outperformed the Canadian stock market and the utility sector in the long run. For example, below is a comparison of an initial investment of $10,000 over 10 years in the two top utility stocks, the iShares S&P/TSX 60 Index ETF (a Canadian stock market proxy), and iShares S&P/TSX Capped Utilities Index ETF (a Canadian utility sector proxy).
BIP.UN, BEP.UN, XUT, and XIU Total Return Level data by YCharts
Specifically, in the period, Brookfield Infrastructure Partners stock and Brookfield Renewable Partners stock delivered annualized returns of almost 17.5% and 17%, respectively. In comparison, XIU delivered a compound annual growth rate (CAGR) of almost 8.6%, and XUT delivered a CAGR of 7.6%.
Dividends
Brookfield Infrastructure Partners and Brookfield Renewable Partners offer decent cash-distribution yields of about 4.3% and 4.6%, respectively, at writing. In comparison, XIU and XUT offer yields of about 3.3% and 3.5%, respectively.
Other than providing higher yields, BIP and BEP have also demonstrated consistent cash-distribution growth. They have increased their cash distributions for about 15 and 13 consecutive years, respectively. BIP’s five-year cash distribution-growth rate is 6.6%, while BEP’s is 5.1%.
Their nice yields and growing dividends can fire up your portfolio and can encourage you to save and invest regularly. Going forward, management targets funds from operations (FFO) growth that will allow them to grow their cash distributions by at least 5% per year, while leaving cash flow to reinvest into the business.
Wonderful businesses
Brookfield Infrastructure Partners is a global owner and operator of a quality, diversified portfolio of infrastructure assets across 15 countries. Its portfolio consists of essential infrastructure assets, such as regulated transmission, rail, toll roads, data transmission, and energy transportation, storage, and processing. About 90% of its FFO is contracted or regulated, and more than 80% is protected from inflation.
Brookfield Renewable Partners has a diversified portfolio of hydroelectric, wind, solar, distributed energy and sustainable solutions across North and South America, Europe, and Asia. About 90% of its FFO is contracted with a 14-year average power-purchase agreement.
Both businesses enjoy an investment-grade S&P credit rating of BBB+.
Investor takeaway
Going forward, both utilities target FFO growth per unit of at least 10%, which could drive total returns of 12-15%. Investing in these stocks, especially at good valuations, is like rolling a snowball down a hill — it will become bigger and bigger like your dividend portfolio.
Right now, both stocks are undervalued. At $46.95 per unit, analysts believe Brookfield Infrastructure Partners trades at a discount of about 21%. At $39.20 per unit, Brookfield Renewable Partners trades at a similar discount of approximately 19%. So, it’s a good time to buy shares for long-term investing.
