The greatest challenge for utility stocks has always been a rising interest rate environment. As of this writing, the sector’s sensitivity to interest rates is very apparent. It’s the second-worst performer after communications services, with its 10.5% year-to-date loss.
However, even with rising interest rates and oil prices, utility companies can pass on price changes to consumers. Moreover, the demand for utilities is consistent even during economic downturns because they are everyday essentials. If you’re risk-averse, utilities are defensive assets.
AltaGas Ltd. (TSX:ALA) and Fortis (TSX:FTS) are the top utility stocks you can buy today. Both companies attract income-focused investors for their rock-steady dividends and safe returns. Some market analysts expect the defensive sector to come into favour soon as the market transitions from full expansion to early contraction.
Robust long-term fundamentals
AltaGas is the steadiest and top-performing utility stock on the TSX. At $26.06 per share, current investors enjoy a 15.4% year-to-date gain and partake in the 4.18% dividend. This $7.3 billion infrastructure company operates a diversified, lower-risk, high-growth Utilities and Midstream business in North America.
In the first half of 2023, consolidated revenue declined 6.4% year over year to $6.7 billion, although net income applicable to common shares rose 47.1% to $578 million from a year ago. “Despite the negative wildfire and hedge timing impacts present in the second quarter of 2023, our first half of 2023 results are in line with our expectations,” said new President and CEO Vern Yu.
The former CFO of Enbridge said, “AltaGas has a visible multi-year growth profile through large modernization programs and ongoing customer additions at the Utilities as well as continued global export volume growth and value chain investment opportunities across the Midstream platform.”
Mr. Yu adds, “The long-term fundamentals for AltaGas’ business are robust. The Canadian upstream industry will deliver robust growth in natural gas and associated natural gas liquids (NGLs) production in the coming years. Our Utilities have a bright future with natural gas remaining the largest home energy source across our jurisdiction.”
AltaGas paid monthly dividends from 2010 to 2021 before changing the payout frequency to quarterly in 2022. The annual dividend has grown from $0.66 per share to $1.06.
New dividend king
Fortis is a no-brainer buy if you want uninterrupted, growing dividends. The $26 billion well-diversified regulated electric and gas utility company officially became Canada’s second dividend king after raising its dividend for 50 consecutive years on September 19, 2023.
The hike isn’t over, as management also announced annual dividend growth of 4% to 6% through 2028. If you invest today, the share price is $53.45 (+1.7% year to date), while the dividend yield is 4.42%.
Its President and CEO, David Hutchens, said the new 2024-2028 capital plan of $25 billion will support Fortis’ annual dividend growth guidance. He adds that the latest capital plan is larger than the previous five-year plan and the largest in the company’s history.
Hutchens adds that besides a low-risk and highly executable five-year capital plan, nearly 100% are regulated investments and 18% are for major capital projects.
Investors look for havens to park their money during bear markets or uncertain times. Both AltaGas and Fortis are certified safety nets.