Here’s Why Canadian Utilities Is a No-Brainer Dividend Stock

As far as top Canadian dividend stocks are concerned, Canadian Utilities (TSX:CU) deserves a top spot on investors’ watch lists right now.

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While the stock market strategies continue to change, investing in dividend stocks is a popular option in all ways. These stocks have outperformed the Toronto Stock Exchange with lower volatility. One such dividend stock to invest in 2024 as a passive-income source is Canadian Utilities (TSX:CU).

Here’s more on why I think this stock represents some intriguing value, particularly at its beaten-down levels.

What does Canadian Utilities do?

Canadian Utilities, as its name suggests, offers electricity and gas services as a subsidiary of Atco. Its main divisions include electricity, pipelines and liquid and retail energy. Canadian Utilities Limited predominantly operates in Canada and Australia and is headquartered in Calgary, Alberta. 

The company also operates in the United States and Mexico, recently launching a large venture called Atco Energy, a low-cost and sustainable energy solution for Alberta. 

Strong and sustainable dividend history

Known for its solid and consistent business model, Canadian Utilities has provided investors with a long and stable history of dividend income. The company’s current dividend yield sits at 5.9%, making this stock a clear and compelling bond proxy worth considering from an income standpoint alone.

This yield is supported by strong earnings, with the company bringing in $596 of adjusted earnings in 2023. The company’s price-to-earnings ratio currently sits at 13.3 times (firmly in value territory), and plenty of growth is expected on the horizon.

For those seeking a consistent cash flow machine that pays bond-level yields, this is one top option to consider right now, in my view.

Bottom line

For roughly five consecutive decades, Canadian utilities has seen strong dividend growth, driven by its stable cash flows from its core business. Unless something drastically changes, this will remain a top dividend stock investors will want to simply hold for the long term. At current prices, I think CU stock is undervalued, and it’s atop my buy list at the moment.

Of course, a number of headwinds could arise that break this thesis down. Perhaps we’ll be entering a period of economic uncertainty. Or, regulated utilities could see their rates pushed down by regulators. It’s possible.

But even in a world where that’s the case, I’d want to own a top-tier utility play like Canadian Utilities. Stability will be greatly rewarded in this environment. Thus, I don’t think investors can go wrong owning this name for the next five to 10 years.

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 Chris MacDonald 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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