Forget Canopy Growth: 3 Utility Stocks to Buy Instead

These top Canadian utility stocks look like excellent buys to protect and grow your capital.

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The legalization of marijuana in Canada saw the rapid rise of several “weed stocks” like Canopy Growth. What was once a large-cap giant and a force to be reckoned with on the stock market is now an almost forgotten small-cap stock.

Granted, the right market conditions can lead to weed stocks offering substantial returns. However, buying at the right time and exiting before pullbacks to secure good returns is too risky. There are other ways to leverage stock market investing for secure and reliable returns. To this end, these three TSX utility stocks can be perfect holdings for your self-directed portfolio.

Fortis

Fortis (TSX:FTS) is often considered one of the best long-term options for investors to consider. The $25.71 billion market capitalization company is one of the largest utility stocks in North America. It operates several natural gas and electricity utility businesses in Canada, the U.S., and the Caribbean.

Fortis provides essential services to around 3.5 million utility customers. Additionally, it generates most of its revenue through long-term contracted assets in highly regulated markets. The result is a solid business model that generates predictable and recurring revenue. While high debt loads and high interest rates have weighed on its financials, the company looks well-positioned to continue paying its shareholders.

As of this writing, it trades for $51.84 per share, boasting a 4.55% dividend yield.

Hydro One

Hydro One (TSX:H) is another major player in the Canadian utility sector. The $22.95 billion market capitalization company operates regulated transmission and distribution assets in Ontario. It is the largest electricity provider in the region, serving roughly 1.5 million customers. It is also backed by an almost 50% common equity stake held by the province of Ontario itself.

Unlike many of its industry peers, Hydro One stock has been performing well on the stock market. As of this writing, Hydro One stock trades at $38.08 per share, just shy of its $41.69 per share all-time high from March 2024. Despite the high-interest-rate environment, Hydro One stock’s fourth-quarter results saw it report $181 million in profits. At current levels, it pays its shareholders at a 3.11% dividend yield.

Algonquin Power & Utilities

Algonquin Power & Utilities (TSX:AQN) is a utility stock that uncharacteristically slashed its dividends amid the high-interest-rate environment, owing to poor debt management. The dividend cut triggered a sell-off frenzy. At its worst, the company lost more than 60% of its valuation. However, the company’s operational income never went into the red during the whole ordeal.

After a disastrous two years of trading, things might be looking up. The company took on more debt to pay off its short-term debts and has since raised its payouts generously in the second half of 2023. Another dividend hike might see it surpass its dividends since before it slashed payouts. As of this writing, the stock trades for $8.18 per share, boasting a juicy 7.20% dividend yield.

  • We just revealed five stocks as “best buys” this month … join Stock Advisor Canada to find out if Algonquin Power & Utilities Corp. made the list!

Foolish takeaway

Dividend investing is an excellent way to use your capital to generate stable and reliable returns. Identifying high-quality stocks that generate stable returns is essential to use dividend investing. Utility stocks might not offer the same rapid growth potential as marijuana stocks. However, they offer dividends backed by solid underlying businesses that you can rely on for virtually predictable passive income.

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 Adam Othman has no position in any of the stocks mentioned. The Motley Fool recommends Fortis. The Motley Fool has a disclosure policy.

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