Canadian utility stocks are known for their steady dividend payments, making them a compelling investment for income investors. Utility services, like electricity, are deemed essential for the economy, adding stability to the financials of the companies operating in this space. Their defensive business model, regulated assets, and predictable cash flows enable them to consistently pay and increase their payouts for decades.
So, if you are a dividend investor looking for worry-free income, here are three top Canadian stocks from the utility sector with fundamentally strong businesses and solid payouts to buy in October.
Utility stock #1
Canadian Utilities (TSX: CU) is the top stock in the utility sector for dividend investors to buy in October. The company’s regulated operations in pipelines, natural gas, and electricity transmission and distribution allow it to generate steady cash flow in all market conditions. This stability supports its ability to consistently pay dividends.
Impressively, Canadian Utilities has increased its dividend every year for the past 52 years, the longest streak of any publicly traded Canadian company. The company aims to continue raising its dividends in line with its sustainable earnings growth from its regulated and long-term, contracted investments. Moreover, it pays an attractive yield of about 5%.
With a strong base of regulated and contracted earnings, Canadian Utilities is well-positioned for ongoing dividend growth. Over the years, the company has grown its global rate base to $15.4 billion through continued investments in utilities.
Looking ahead, it plans to invest between $4.3 billion and $4.7 billion in utilities, which is expected to grow its rate base by 3.5% to 4.3% by 2026. This expansion will further support its earnings and dividend payments. Additionally, the company is optimizing its energy infrastructure assets and exploring new growth platforms, which will contribute to future earnings and distributions.
Utility stock #2
Dividend investors could consider investing in Canada’s leading electric utility company, Emera (TSX: EMA). Last week, the company announced a 1% increase in the annual dividend, marking 18 consecutive years of dividend growth.
With total assets worth about $39 billion, Emera generates 96% of its adjusted net income from regulated utilities, which adds stability to its payouts. The company forecasts its rate base to increase by 7-8% through 2029. The expansion of the rate base will drive its earnings, which are forecasted to grow by 5-7% annually through 2027.
Thanks to its defensive assets, regulated cash flows, and growing earnings base, Emera aims to grow its dividend by 1-2% in the coming years. It offers a high yield of approximately 5.4%. Further, its earnings per share is projected to increase faster than its dividend, enabling the company to reduce and achieve a sustainable payout ratio.
Utility stock #3
Shares of the regulated electric and gas utility company Fortis (TSX: FTS) are a must-have for dividend investors. The Canadian utility giant recently increased its quarterly dividend by 4.2% to $0.615 per share, marking 51 consecutive years of dividend growth. Fortis’s growing rate base drives its earnings and dividend payments.
The company’s $26 billion capital investment plan will enable it to grow its rate base by 6.5% annually through 2029. This rate base expansion will support Fortis’s earnings and help it raise its dividends by 4-6% each year during this period.
Additionally, Fortis is investing in energy transition projects, focusing on cleaner, more sustainable energy sources. It’s also working to strengthen its infrastructure, positioning itself for continued growth.
Fortis’s business model is highly resilient thanks to its stable, regulated operations. The company has strong visibility on future earnings and dividend payouts, making it a low-risk option for those looking to generate passive income. It also offers a well-protected yield of 4%.
