Investors who take positions in the utilities sector are risk-averse and income-oriented. Moreover, utility stocks have less price volatility and pay stable dividends. Unfortunately, the sector is very sensitive to interest rate movements and was among the worst performers in 2023 due to the central bank’s rate-hike cycle.
As of this writing, the TSX (+1.26%) is in positive territory, and seven of 11 primary sectors are up year to date. However, utilities (-2.27%) are losing thus far in 2024. Still, market analysts expect the sector to pick up soon when interest rate cut begins. Consider buying Capital Power (TSX:CPX) before it happens.
At $36.51 per share, CPX is down 3.51% year to date and 10.74% from a year ago. The high 6.74% dividend yield should compensate while you wait for the utility stock to rebound. Furthermore, the company hasn’t missed a quarterly dividend payment since the third quarter (Q3) of 2009.
Growth-oriented
Capital Power is growth-oriented and owns power-generation assets across North America. The $4.27 billion independent power producer has 31 operating facilities with a combined capacity of 8,662 megawatts (MW). Around 12 are under development and two projects are under construction.
In 2022, Capital Power disclosed $1.3 billion in capital projects through 2024. It expects complete repowering of its Genesee 1 & 2 stations and be off coal this year. Management said the company will also develop carbon-free assets using the latest technology.
Genesee 1 & 2 produce 880 MW (gross) of power for Alberta’s wholesale electricity market. Capital Power is repowering both stations to natural gas combined cycle (NGCC) generation units. Once repowered, the units will provide an additional 538 MW of net capacity.
Climbing the world stage
Capital Power will deploy carbon capture and sequestration (CCS) technology. With the best-in-class NGCC technology, the repowered assets will set a new standard for gas generation efficiency in Canada. Genesee 1 & 2 will become dedicated NGCC units post-repowering.
In mid-January 2024, Capital Power and Ontario Power Generation (OPG) agreed to jointly assess the development and deployment of grid-scale small modular reactors (SMRs). The parties hope to complete the feasibility assessment in two years. SMRs provide clean, reliable nuclear energy.
The agreement should help elevate Capital Power on the world stage. Likewise, it’s a key milestone in the evolution of building a decarbonized power system. The result should be real net-zero power solutions for customers.
“We are at the forefront of electrification, which will drive continual growth in demand for power,” said Avik Dey, president and chief executive officer of Capital Power. “The deployment of SMR technology will provide an important source of safe, reliable, flexible, affordable, and clean baseload electricity in Alberta in the future.”
In the first three quarters of 2023 (nine months ending September 30, 2023), total revenues and net income increased 64.5% and 182.8% year over year to $3.3 billion and $672 million, respectively. Capital Power announced new appointments to expand the executive team. Dey said the executive team and their optimized portfolios will lead the company to net zero by 2045.
No better deal than this
Capital Power has raised its dividend for nine consecutive years. There’s no better deal than a Dividend Aristocrat trading at a discount and offering a lucrative dividend yield.
