Dividend Investors: Top Canadian Utility Stocks for December 2023

These Canadian utility stocks have increased dividends for 50 years or more.

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Investing in utility stocks can be attractive for several reasons. The most prominent ones are stability and consistent dividend income. Notably, utility companies operate in a regulated business environment, with regulatory bodies determining the rates that utility companies can charge for their services, thus reducing the risk of fluctuating revenues. Moreover, the regulated pricing structure of utilities often allows companies to adjust their rates in response to inflation. This acts as a hedge against inflation. 

In summary, the stability and predictability of their earnings allow these companies to enhance shareholders’ returns via increased dividend payments. Besides providing consistent dividend income, utility companies tend to be less sensitive to economic downturns, making them a reliable bet in all market conditions.

With this background, let’s look at two Canadian stocks from the utility sector that dividend investors could consider investing in in December 2023 for worry-free income. 

Fortis

Dividend investors must keep an eye on Fortis (TSX:FTS) stock in the utility sector. Fortis owns a solid portfolio of regulated utility businesses. Thanks to its low-risk business model and growing earnings base, this utility company has consistently enhanced its shareholders’ value through increased dividend payments. It’s worth highlighting that Fortis increased its dividend for 50 consecutive years. Furthermore, the company is well-positioned to raise its dividend further in the coming years. 

Fortis’ $25 billion five-year capital plan is expected to increase its rate base from $36.8 billion in 2023 to $49.4 billion by 2028. This reflects a five-year compound annual growth rate (CAGR) of 6.2%. The consistent growth in Fortis’ rate base will drive earnings to support dividend growth in the coming years and internally generate significant capital to fund future growth opportunities. 

While energy price volatility and persistently high interest rates are a concern, these are unlikely to have a material impact on its payouts. Moreover, its robust transmission investment pipeline and cleaner energy infrastructure investments augur well for growth. Fortis plans to increase its dividend by 4-6% per year through 2028. Meanwhile, it currently offers a dividend yield of 4.3% (based on its closing price of $54.84 on December 1). 

Canadian Utilities

Canadian Utilities (TSX:CU) is another compelling stock in the utility sector to earn reliable dividend income. It provides electricity transmission and distribution services and also owns energy infrastructure assets. The company’s highly contracted and regulated earnings base provides the foundation for continued dividend growth. Moreover, its investment in utilities has grown its global rate base to $14.9 billion. 

What stands out is that Canadian Utilities has increased its dividend every year for the past 51 years. This is the longest record of annual dividend increases by any Canadian publicly traded company. Moreover, the company aims to grow its future dividend payments in line with its sustainable earnings growth derived from regulated and long-term contracted assets. 

The company plans to invest $4.1 billion between 2023 and 2025 in regulated utility and commercially secured energy infrastructure capital growth projects. This will drive its earnings and cash flows and enable Canadian Utilities to enhance its shareholders’ value through higher dividend payouts.

Its financial strength and ability to fund its existing and future capital investments bodes well for future growth. Besides sporting a stellar dividend growth track record, Canadian Utilities offers a high yield of 5.8%. 

Bottom Line

Dividend investors looking for top-income stocks can consider investing in Fortis and Canadian Utilities from the utility sector. However, one should also focus on diversifying their investments to spread risk and earn consistent passive income. 

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 Sneha Nahata 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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