During the last year, Canadian investors have been seeking dividend stocks for a bit of strength during economic uncertainty. And utilities have long been some of the best defensive stocks in this sector. Yet if any are the best, I would consider dividend stock Canadian Utilities (TSX:CU).
Down 13% in the last year due to higher interest rates and inflation, the company offers a great deal. So let’s look at why you should consider it today.
Dividend King status
CU stock is one of just two Dividend Kings on the TSX today. This means that it’s had over 50 years of dividend increases year after year after year. That’s through multiple recessions, downturns, and even a pandemic.
Of course there has been some turbulence, as we can see, with shares down 13% in the last year. However, I would say this gives investors more of an opportunity for growth rather than worry about the future.
That downturn comes from a rise in interest rates and inflation putting pressure on the company’s revenue. This has caused CU stock to see a decrease in earnings, missing earnings estimates and bringing shares lower. But as the market stabilizes, it’s likely we’ll see shares rise higher. So let’s look at whether earnings have given clues to this.
Earnings growth
CU stock recently announced during its third quarter earnings report that there remains work to be done in terms of earnings growth. It recently reported $87 million in adjusted earnings, which was about $33 million lower compared to the $120 million in the third quarter of 2022.
Yet this could change in the near future, with the company announcing several major moves recently. This included solar power projects, including developing the largest solar installation in Western Canada. It also announced a 12.5-year virtual power purchase agreement for sustainable building solutions as well.
And it’s not just in Canada. CU stock also made announcements for growth in Australia as well. This included an Australian Hydrogen jobs plan project, which included appointing a new chief executive officer and country chair for its Australian branch.
Growth to come, dividends now
This is all to say that CU stock doesn’t exactly seem worried about current earnings issues. It’s dealt with these problems before, and it will again. Meanwhile, its dividend will continue to climb year after year. Which is why now can be a great time to consider the stock.
CU stock now offers a 5.55% dividend yield for investors, trading at just 14.9 times earnings as well. That dividend is also quite higher than its five-year average of 4.92%. Furthermore, its payout ratio remains near healthy territory at just 82%, so it’s still very unlikely that we’ll see a cut in dividends in the near future.
And the company remains steeped in value. CU stock trades at just 2.2 times sales and 1.7 times book value, and offers an enterprise value of 9 over earnings before interest, taxes, depreciation, and amortization (EV/EBITDA). All in all, this dividend stock remains a solid long-term option, with today’s current share price offering a major discount down 13%.
