My 2 Favourite TSX Utility Stocks for December 2023

While typically seen as boring, utility stocks can be excellent for safe dividend income. Here are two of my favourite picks.

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Utility stocks have long stood the test of time with their reputation as safe investments for income-seeking investors. At the same time, utility stocks are considered boring stocks. The utilities sector is not an exciting one that offers exceptional capital gains.

These companies provide essential services to customers. Regardless of the economic situation, utility companies can enjoy virtually guaranteed revenues. With Canadian utility businesses primarily operating in highly rate-regulated markets, their revenue and cash flows are mostly predictable as well.

The predictable income and stable cash flows allow utility businesses to continue paying shareholders their dividends regularly. For the top utility stocks, it also means the companies can fund growing their dividends comfortably.

That said, the pandemic has negatively impacted utility businesses with a lot of variable-rate debt. While some utility stocks felt forced to use cost-cutting measures, the best utility stocks continue being reliable dividend stocks.

Today, we will look at two utility stocks trading on the TSX that you can consider adding to your self-directed portfolio for dividends.

Fortis

Fortis (TSX:FTS) is a $26.96 billion market capitalization darling in the Canadian utilities sector. The utility holdings company owns and operates several natural gas and electricity utility businesses in Canada, the U.S., Central America, and the Caribbean.

Fortis generates almost its entire revenue through highly-rate regulated markets with long-term, contracted assets. The business model allows this utility business to generate predictable and stable cash flows.

However, 2023 has not been the best year for the utility stock. As of this writing, Fortis stock trades for $55.02 per share, down by 11.25% from its 52-week high. The company relies on a heavy debt load to fund its capital programs.

Due to rising interest rates, Fortis stock is feeling the weight of its debt load. Fortunately, its business model allows the company to wade through turbulent markets and continue funding its shareholder dividends.

Its status as a Canadian Dividend Aristocrat with a 50-year dividend-growth streak reflects this fact. At current levels, it pays its shareholders at a juicy 4.29% dividend yield.

Algonquin Power & Utilities

Algonquin Power & Utilities (TSX:AQN) is another top utility stock to consider for dividend income. Unlike Fortis stock, it does not boast a 50-year dividend-growth streak. However, it does offer value to investors as an income and wealth growth stock. The $5.80 billion market capitalization company is headquartered in Oakville, operating as a renewable energy and regulated utility conglomerate.

The company primarily relies on renewable and clean energy assets to generate the power it provides to customers. As the global energy industry transitions to greener alternatives, businesses like Algonquin will have a head start in establishing a strong footing. Owing to macroeconomic factors, Algonquin stock has also had a tough year.

As of this writing, Algonquin stock trades for $8.40 per share, down by over 31% from its 52-week high. While its weakness this year makes it a slightly riskier stock, buying its shares at current levels can mean wealth growth through an inflated 7.13% dividend yield and capital gains as the stock eventually recovers.

  • We just revealed five stocks as “best buys” this month … join Stock Advisor Canada to find out if Algonquin Power & Utilities Corp. made the list!

Foolish takeaway

Dividend investing is an excellent way to put your money to work in the stock market and keep the money flowing. You can reinvest the shareholder dividends to leverage the power of compounding to accelerate your wealth growth. To enjoy consistent and reliable returns in the long run, identifying and investing in high-quality dividend stocks is essential.

To this end, Canadian utility stocks are a mainstay for many Canadian investors. Fortis stock and Algonquin stock are two excellent picks that offer reliable dividends while injecting some growth through long-term capital gains potential.

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 Adam Othman 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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