3 TSX Utility Stocks With Attractive Dividend Yields

You can focus less on yo-yo stock prices and more on dividend income generation, which can be more predictable, by considering utility stocks.

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Investors who buy and hold utility stocks typically target (growing) income generation with long-term price appreciation as a secondary goal. Below is a group of TSX utility stocks with increasingly attractive dividend yields that you can consider.

Brookfield Infrastructure Partners L.P. yields 5.5%

Brookfield Infrastructure Partners L.P. (TSX:BIP.UN) remains a top utility stock to buy for attractive income and long-term total returns. It enjoys an investment-grade S&P credit rating of BBB+. The stock bounced swiftly by as much as 29% from the bottom in late October. However, it still has about 40% upside to get back to its 2022 high.

Brookfield Infrastructure owns and operates a diverse portfolio of quality infrastructure assets around the world in the utility, transport, data, and midstream sectors. The global infrastructure firm’s recent acquisitions include two data centre platforms and a leading global logistics business. It generates durable cash flows that have allowed it to increase its cash distribution by about 15 consecutive years with a 10-year cash distribution growth rate of about 9%.

At $37.47 per unit at writing, the utility stock offers a nice cash distribution yield of 5.5%. According to its usual schedule, it will be increasing its cash distribution by at least 5% in February, which would represent a respectable forward yield of close to 5.8%.

BIP.UN Total Return Level Chart

BIP.UN, EMA, CPX, XUT, and XIU Total Return Level data by YCharts

Emera yields 5.9%

Emera’s (TSX:EMA) S&P credit rating of BBB is investment grade. It is a regulated utility that has predictable returns and resilient earnings. Because of higher interest rates, it entails higher interest expense and a higher cost of capital. So, its stock valuation has come down.

At $48.37 per share, it trades at about 15.7 times earnings, and analysts believe the dividend stock is discounted by about 13%. It is good for a dividend yield of 5.9%. Like Brookfield Infrastructure, Emera is a Canadian Dividend Aristocrat. Its dividend growth streak is about 16 consecutive years.

The utility last increased its dividend by 4.1% in September. In the near term, investors can expect dividend growth at a similar rate because of higher interest rates and a relatively high payout ratio. Its payout ratio is estimated to be approximately 91% of adjusted earnings this year.

Capital Power

As a smaller utility, Capital Power (TSX:CPX) may be ignored by many investors, as it could experience more unpredictable business performance. At least, year to date, it has delivered solid results. Its electricity generation increased by about 16%, while its adjusted EBITDA, a cash flow proxy, increased by approximately 8%.

It has 4.2 GW of near-term growth projects in western Canada, Ontario, and North Carolina to help contribute to results. Compare that to the roughly 1.2 GW of capacity secured for this year’s growth projects.

At $37.72 per share, analysts believe the dividend stock is discounted by 18%. Capital Power stock offers a juicy dividend yield of 6.5%. Like Brookfield Infrastructure and Emera, Capital Power is a Canadian Dividend Aristocrat. Its 10-year dividend growth rate is 6%. CPX’s last dividend hike in August was also 6%. Its trailing-12-month payout ratio is sustainable at about 59% of net income available to common shareholders.

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 Kay Ng has positions in Brookfield Infrastructure Partners. The Motley Fool recommends Brookfield Infrastructure Partners and Emera. The Motley Fool has a disclosure policy.

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