Canadian Utilities Stock: Buy, Sell, or Hold for Passive Income?

Canadian Utilities (TSX:CU) is the original Dividend King. While there are now two on the TSX today, this stock has long been the top dog. However, the last year or two has been a bit rough for Canadian Utilities stock.

While the world over continues to need utilities, the company has seen shares shrink amidst rising costs and interest rates. Today, with things getting back to normal, is Canadian Utilities stock a buy, sell, or hold when it comes to passive income?

Utility stocks on the rebound

First off, let’s look at energy and utility stocks in general. There were a lot of costs that came under pressure during the last two years. However, with interest rates looking like they should come down, analysts are predicting that utility stocks like Canadian Utilities stock should see an increase in share price.

In particular, however, one analyst stated they wanted to see the ability of a company like Canadian Utilities stock to convert its earnings before interest, taxes, depreciation, and amortization (EBITDA) into cash — not just a few times but on a “sustainable basis.”

This means companies such as Canadian Utilities stock need to focus on generating organic growth, the analyst said. For now, that could mean the utility stock tends to perform along the lines of the rest of the sector.

Earnings review

After this report, news came from Canadian Utilities stock in regards to its earnings report. During its third quarter, the company announced adjusted earnings of $87 million. However, this was $33 million lower than the year before, when the company reported $120 million during 2022.

Canadian Utilities stock continues to see higher prices, contributing to higher costs. Further, interest rates are hurting earnings as well. And even once the market starts to recover with interest rates eventually coming down, the company may take time to catch up.

But the question is, does that leave this stock as a buy, sell, or hold? In other words, is right now a deal for investors looking long term?

Identifying value

Canadian Utilities stock has a long history of dividend growth for over 50 years because of its consistency. Right now is certainly a tough time, but the company should continue to perform strongly over the decades to come. This comes from long-term contracts and growth that the utility stock has always had on hand.

Meanwhile, right now, shares are down 15% year to date, offering a superb deal. It trades at just 14.51 times earnings, offering up a huge 5.7% dividend yield as of writing. That’s far higher than its 4.91% average over the last five years.

So, if you were to put in $5,000 towards Canadian Utilities stock for passive income, here is what that could turn into after hitting 52-week highs.

As you can see, you could generate passive income of $1,440 in returns and $288.19 in dividends as of writing. That’s total passive income of $1,728.19, making this one for long-term investors to consider.