Utility stocks are a good consideration for a diversified long-term portfolio. They generally provide decent dividend income and reliable dividend growth. Here are some top Canadian utility stocks that look ripe for picking!
Fortis stock
The stock of regulated utility Fortis (TSX: FTS) is experiencing a bit of a dip. It is a blue-chip stock that Canadian investors can trust with their capital that they don’t need for a long time. This year marks Fortis’s 50th consecutive year of dividend growth, representing one of the longest dividend-growth streaks on the TSX. It’s a demonstration of a business that delivers reliable results throughout the economic cycle.
Sure enough, the diversified North American utility, which primarily offers essential services of electricity and gas distribution and transmission, rarely experiences dips in its adjusted earnings per share, even in recessions.
Higher interest rates are one reason for Fortis stock’s dip. At $53.96 per share, it trades at a price-to-earnings ratio (P/E) of about 17.6, which is a decent valuation compared to its long-term normal valuation. Specifically, it trades at a discount of approximately 10%. At this level, it offers a safe dividend yield of close to 4.4%. Obviously, this isn’t the highest-yielding utility, but top-quality stocks often don’t have the highest yields in the industry.
You can sleep well at night with Fortis stock. The business is so predictable that management already projects dividend growth of 4-6% per year for the next few years.
Emera stock
Another top Canadian utility stock that appears good for consideration is Emera (TSX: EMA). Like Fortis, it’s a regulated utility with North American assets. The two stocks typically move in tandem with similar total returns. However, Emera generally offers a bigger dividend yield. Here’s a comparison of their 10-year total returns for illustration purposes.
FTS and Emera 10-Year Total Return Level data by YCharts
At the recent price of $49.43 per share, Emera stock trades at a P/E of roughly 16.1, which is a discount of approximately 12% from its long-term normal valuation. At this level, it offers a juicy dividend yield of about 5.8%, which is almost a third more than the income available from Fortis. So, income-hungry investors may be inclined to lean more towards a position in Emera over Fortis.
Notably, Emera does have a higher payout ratio than Fortis. Its payout ratio is about 91% of its adjusted earnings this year versus Fortis’s payout ratio of about 75%. Therefore, it’s likely that Emera’s dividend growth will be slower than Fortis’s over the next few years.
Brookfield Infrastructure Partners
Brookfield Infrastructure Partners (TSX: BIP.UN) is an interesting utility stock. It tends to experience bigger corrections than the above two stocks in a market pullback. But those turn out to be incredible buy-the-dip opportunities, as the stock subsequently makes a strong comeback.
In the last dip, the stock was more sensitive to higher interest rates than the other two utilities because it has a more leveraged balance sheet. However, the company has strong access to capital and maintains an investment-grade S&P credit rating of BBB+. So, the stock recovered swiftly, as shown in the chart below.
BIP.UN 10-Year Total Return Level data by YCharts
Investors who can withstand volatility could potentially create greater wealth with Brookfield Infrastructure stock in the long run. At $42.03 per unit, the global infrastructure stock offers a cash distribution yield of about 4.8%. Analysts believe the stock trades at a discount of about 15%. Based on its history of outperformance, it’s probable that it’ll deliver the highest cash distribution growth among the three utility stocks over the next few years.
