The data is in. October saw inflation rates fall to just 3.1%, heading incredibly near to the Bank of Canada’s goals. While we’re not out of the woods yet, there is certainly reason to be optimistic. And yet, there is also a reason to consider finally buying those long-term protective stocks once again.
That’s where utility stocks come in. These are actually still quite valuable. Utility stocks climbed during the beginning of the market downturn as the world over headed towards their secure revenue streams. However, with too many seeking them out, there was a drop afterwards.
Yet, this could be exactly why it’s still a great time to consider these utility stocks once more.
Protection against rate increases
Let’s think long term here. Sure, inflation is falling, and interest rates may be down for now. But there could still be a rise in interest rates once again, because nothing is off the table. Furthermore, utility stocks could provide you long-term protection against the next time there’s a rise in interest rates.
That’s because there are a few reasons why utility stocks remain stable even during rising interest rates. The companies tend to have stable cash flows from the use of electricity, water, and gas. Demand is constant, and not about to drop even in the face of higher interest rates.
Furthermore, utility stocks are involved in regulated environments. While this can mean lower growth over a decade compared to growth stocks, it means lower losses during downturns. That’s because government agencies can set the rates to charge customers, producing fair returns. Overall, these are less volatile stocks. Especially for long-term investors.
Utility stocks to consider
Yet, perhaps the major reason that investors seek out utility stocks is because of the dividend. Given their stability as an investment, these utility stocks can produce long-term dividends as well. In fact, the only two Dividend Kings on the TSX today are both utility stocks.
That’s why if you’re going to consider any for long-term stability, look to Canadian Utilities (TSX:CU) and Fortis (TSX:FTS). CU stock and Fortis stock both offer long-term stability and growth from their strong revenue production. Further, they each have been growing their dividend for the last 50 consecutive years!
Yet, both CU stock and Fortis stock offer value right now. During the rise and fall of utility stocks, these stocks were both subjected to the drop in share price. Now, shares are down 15% in the last year for CU stock, and up just 5% for Fortis stock. Meanwhile, you can grab hold of a dividend yield at 5.77% for CU stock and 4.19% for Fortis stock. Both are about 1% higher than the five-year average dividend yield as well.
Bottom line
If you’re looking for stability, utility stocks have long been the best option. Yet after the rise and fall from an influx of investors, these stocks offer major value today. You can latch onto stable cash flows and long-term growth that will last you decades. Along with a dividend that will continue to grow year after year, just as it has for the last 50 years.
