Better Buy for Dividends: Canadian Utilities or Fortis Stock?

These utility dividend stocks have been some of the best in the business, but which comes out on top?

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Investing in dividend stocks can be a strategic choice for those seeking a steady stream of income while still benefiting from potential capital appreciation. In Canada, two prominent utility companies, Canadian Utilities (TSX:CU) and Fortis (TSX:FTS), have garnered attention from income-focused investors. Let’s explore the merits of each company’s stock and their dividend prospects to determine which might be the better investment in this regard.

Canadian Utilities

As of late, Canadian Utilities stock has seen its stock price trade at a reasonable 14.1 times earnings. However, the dividend stock’s 6.09% dividend yield is particularly attractive for income-oriented investors. This substantial dividend yield is a testament to Canadian Utilities’ commitment to distributing profits to its shareholders.

In the past year, Canadian Utilities stock has faced a challenging environment, with a decline of 15%. This downturn might be a concern for potential investors, but it also presents an opportunity to purchase the stock at a more attractive valuation. It’s important to remember that stock prices can be influenced by various market factors, which may not necessarily reflect the underlying health of the company.

The dividend stock has been making significant moves, including executive appointments, capital expenditures, and expanding its renewable energy portfolio. This demonstrates the company’s commitment to growth and sustainability, which could positively impact its ability to maintain and potentially increase its dividend payouts.

In July 2023, Canadian Utilities declared a third-quarter dividend of $44.86 cents per share, reflecting a strong commitment to dividend distributions. This reliable dividend payment history is a promising sign for income investors, suggesting that Canadian Utilities values the interests of its shareholders.

Furthermore, the company sees significant growth potential in the energy transition, which may provide opportunities for the stock’s value to appreciate. The possibility of creating ATCO EnPower as a separate entity also underscores the company’s commitment to exploring avenues for growth.

Fortis

On the other hand, Fortis stock is trading at a slightly higher price-to-earnings ratio of 18.7. However, the company still offers a respectable 4.34% dividend yield. While it may not be as high as Canadian Utilities’ yield, Fortis has its own set of merits to consider.

Unlike Canadian Utilities stock, Fortis stock has witnessed a 6% increase in its stock price over the past year. This price appreciation might be appealing to investors looking for potential capital gains along with steady dividends.

The dividend stock has an ambitious capital plan in place, totalling $25 billion from 2024 to 2028. This plan primarily aims for a 6.3% growth in the rate base, and it focuses on investments in transmission in the U.S. Midwest and a resource transition plan in Arizona. This growth strategy aligns with the company’s mission of providing cleaner, more affordable energy to customers while maintaining a strong focus on dividend growth.

Fortis stock’s longstanding history of increasing dividends is impressive. It has almost achieved 50 years of consecutive increases in dividends paid, making it one of only two companies on the TSX today to attain this milestone. The other being Canadian Utilities stock. The company has extended its annual dividend growth guidance of 4-6% through 2028, assuring investors of its commitment to shareholder value.

Furthermore, Fortis places a strong emphasis on cleaner energy and plans to invest substantially in renewable energy projects. This approach aligns with the global shift towards sustainable and environmentally friendly energy sources.

Bottom line

Both Canadian Utilities and Fortis stock have their unique strengths and appeal to income-focused investors. Canadian Utilities boasts a higher dividend yield, while Fortis offers the potential for capital appreciation and a strong dividend history.

The choice between the two ultimately depends on individual investment goals and risk tolerance. Income investors may find Canadian Utilities’ higher yield appealing. Meanwhile, those seeking a balance between dividends and potential stock price growth may gravitate towards Fortis. It’s essential to conduct further research and consider your investment objectives. Also, consult with a financial advisor to make an informed decision tailored to your specific needs.

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 recommends Fortis. The Motley Fool has a disclosure policy.

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