Is Canadian Utilities a Buy?

Canadian Utilities (TSX:CU) stock offers stability, value, and the longest-running dividend-growth streak in Canada.

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The S&P/TSX Capped Utilities Index was up nearly a full percentage point in early afternoon trading on Tuesday, January 2, 2024. Canadian investors may be on the hunt for stability in their portfolios after enduring a plethora of interest rate hikes in 2022 and 2023. Indeed, the Bank of Canada (BoC) has pursued the most aggressive interest rate tightening policy since the early 2000s. The BoC has moved ahead with eight interest rate hikes since March 2022, moving the benchmark rate from 0.50% that March to 5% at the time of this writing.

Utilities have offered cover for investors looking for stability and security in previous interest rate cycles. Some economists believe that we have reached peak rates. Indeed, policymakers from the BoC and the United States Federal Reserve have both hinted at interest rate cuts in 2024. This could produce a friendly environment for the utility space. Canadian Utilities (TSX:CU) remains one of the most attractive targets in this space for Canadians. In this piece, I want to explore why Canadian investors may want to add this utility stock to their portfolios.

How has Canadian Utilities performed over the past year?

Canadian Utilities is a Calgary-based company that is engaged in the electricity, natural gas, and retail energy businesses in the United States, Australia, and around the world. Shares of Canadian Utilities have climbed 3.85% month over month as of close on Tuesday, January 2, 2024. Meanwhile, the utility stock has plunged 13% compared to the prior year. Does that mean investors should be wary of this struggling stock? Or is Canadian Utilities stock a terrific buying opportunity?

Why you can count on the utility space in 2024 and beyond

The utility sector represents companies that offer essential services like electricity, natural gas, and water. Utility companies offered to investors as part of the S&P/TSX Capped Utilities Index are private. However, while these companies strive for profit, they are part of the public service infrastructure and are subject to strict regulations. That provides some of that sought-after security and stability that investors may be hungry for after a volatile 2023.

Should investors be happy with Canadian Utilities’s recent earnings?

Investors can expect to see Canadian Utilities’s next batch of earnings in late February or early March 2024. Meanwhile, the company unveiled its third-quarter (Q3) fiscal 2023 earnings on October 26, 2023.

In Q3 2023, Canadian Utilities announced a partnership agreement between the Chiniki and Goodstoney First Nations for the Deerfoot and Barlow Solar power projects, the largest solar installation in an urban centre in Western Canada. Moreover, it entered a 12.5-year virtual power-purchase agreement with Lafarge.

The company reported adjusted earnings of $87 million — down from $120 million in the previous year. That brought its year-to-date adjusted earnings to $404 million compared to $475 million for the same stretch in fiscal 2022.

Bottom line

Shares of Canadian Utilities stock currently possess a price-to-earnings ratio of 14. That puts this utility stock in very favourable value territory compared to its industry peers. Moreover, it remains on track for solid earnings growth going forward.

A Dividend King refers to a stock that has paid out at least 50 consecutive years of dividend growth. This is an elite group with only two members in Canada. Canadian Utilities is the first to have achieved this impressive milestone.

Canadian Utilities last paid out a quarterly dividend of $0.449 per share. That represents a strong 5.6% yield at the time of this writing. This company has delivered 51 straight years of dividend growth as of January 2024.

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 Ambrose O'Callaghan has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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