The need for a defensive stock or two in your portfolio cannot be understated, and utilities are some of the best defensive stocks to own. Fortunately, the market provides plenty of options to consider, including these two top utility stocks to buy now.
When speaking about the top utility stocks to buy, it’s important to recognize the only two Dividend Kings in Canada: Fortis (TSX:FTS) and Canadian Utilities (TSX:CU).
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Fortis offers growth and income
Fortis operates one of the largest utilities in North America. The company boasts operating regions located across Canada, the U.S., and the Caribbean. In other words, Fortis is huge.
The $66 billion behemoth has 3.4 million customers across both its electric and gas segments. More importantly, 99% of its operations are regulated by long-term contracts, which often span decades.
This means that as long as Fortis continues to provide utility services, it generates revenue. And that revenue allows the company to invest in growth and pay out a handsome dividend.
Speaking of growth, Fortis is unique among its peers. The company has taken an aggressive approach toward growth, acquiring increasingly larger companies in the process. Fortis’s acquisitions have also allowed the company to quickly branch out into new markets.
In recent years, that growth has shifted more towards upgrading existing facilities and transitioning to renewables.
In terms of income, Fortis offers investors a tasty quarterly dividend. As of the time of writing, the yield on that dividend works out to a respectable 4.37%. This means that investors who drop $25,000 into Fortis (as part of a larger, diversified portfolio) will earn an income of nearly $1,100 in the first year.
The reason I say the first year is because of another key reason why Fortis is one of the top utility stocks to buy. Fortis has provided investors with annual upticks to its dividend for an incredible 50 consecutive years without fail.
The company has also planned to continue that annual tradition through 2028, averaging a 6-8% annual increase.
Canadian Utilities is the first Dividend King
The other Canadian Dividend King on the market right now is Canadian Utilities (TSX:CU). Canadian Utilities has managed to provide investors with annual increases to its dividend for an incredible 51 consecutive years.
As of the time of writing, the quarterly dividend currently pays out a generous yield of 5.70%. Using the same $25,000 example from above, prospective investors can expect a first-year income of $1,400 from an investment in Canadian Utilities.
Like Fortis, the overwhelming majority of Canadian Utilities’s business adheres to long-term regulated contracts. That stable revenue stream allows the company to invest in growth initiatives and maintain its superb dividend streak.
Speaking of growth, Canadian Utilities has earmarked over $4 billion slated for growth projects over the next two years. Adding to that appeal for prospective investors is timing.
As of the time of writing, Canadian Utilities trades down over 15% year to date. Much of that drop can be attributed to the impact of higher interest rates, which is something the entire market is coping with.
In short, this makes it an excellent time to pick up this highly-discounted long-term gem, which trades at a price-to-earnings ratio of just 14.42.
The top utility stocks to buy today
Both Canadian Utilities and Fortis are excellent long-term options to consider right now. They can provide growth as well as a handsome (and growing) income stream for years to come.
In my opinion, one or both should be part of any well-diversified long-term portfolio.
