It did not take long for Donald Trump to begin changing everything since taking office. On February 1, 2025, the U.S. president signed orders to increase tariffs on Canadian and Mexican imports by 25%. These tariffs automatically put Canadian infrastructure in the limelight, especially its utility sector.
Canadian utility stocks include companies generating and transmitting natural gas and electricity. This list also includes companies in the renewable energy space, like those involved with wind and hydroelectric power. It also covers those producing energy through nuclear power and conventional sources like natural gas.
The impact of tariffs on the Canadian economy can be significant. 20% of Canada’s Gross Domestic Product (GDP) relies on U.S. exports. A 25% tariff increase can make the cost of Canadian exports higher, eventually leading to more preference for U.S.-based goods as alternatives to Canadian imports in the U.S.
Canadian energy imports were subjected to a lower 10% tariff on account of 60% of America’s crude oil imports being from Canada. Utility stocks have stood the test of time as safe and reliable investments for even the most risk-averse investors.
There is debate that the tariffs are a negotiating tactic to urge Canada and Mexico to improve border security. However, the tariff situation plays out, and it might not have too much of an impact on decisions for investors looking at Canadian utilities.
Today, I will look at two Canadian utility stocks that can be good investments to consider.
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Fortis
Fortis (TSX:FTS) owns and operates several regulated utility assets across the U.S., the Caribbean, and Canada. It is a low-risk utility business with long-term contracted assets. These factors mean that Fortis can generate generally stable and predictable cash flows. The stability it enjoys has allowed Fortis to hike its dividend payouts to shareholders for over 50 years, making it a Canadian Dividend King.
The company continues to expand its assets base through a multi-billion-dollar capital investment plan. Fortis can likely increase its rate base at a 6.5% annualized rate until 2029 due to its expansion. As of this writing, Fortis stock trades for $62.76 per share and offers a 3.92% annualized dividend yield that it pays at a quarterly schedule.
While it might not offer much in terms of short-term capital gains, it is as solid as it comes when you want a passive income through growing dividends.
Hydro One
Hydro One (TSX:H) is another major player in the Canadian utility space, but it is quite different from Fortis. The $27.05 billion market capitalization company runs regulated transmission and distribution assets based primarily in Ontario. One of the biggest factors favouring the company is the province itself, which holds almost half of the common equity stake in the company. Backed by the provincial government, it is safe to say the utility company is here to stay.
Hydro One does not have to deal with volatile natural gas prices because of its lack of exposure to commodities. The demand for electricity is only increasing, and Hydro One continues expanding its assets to meet it. Besides that, Hydro One is improving operational efficiencies and cutting costs to bolster its financials. Unlike other utility stocks, it offers substantial growth potential through capital gains.
As of this writing, Hydro One stock trades for $45.12 per share, up by almost 54% in the last five years. It also pays its shareholders their dividends at a 2.79% dividend yield, which adds to the reasons why it can be a good holding in any portfolio.
Foolish takeaway
By providing essential services, Canadian utility companies can deliver stable and predictable financials. Despite broader economic challenges, these can be excellent defensive bets to get some stability in your self-directed portfolio.
Being the giant among Canadian Dividend Aristocrats, Fortis can set the foundations for solid passive income through dividends. Hydro One stock can inject growth through its pure-play electric transmission business model. The combination of these two Canadian utility stocks can be a good way to balance growth and stability in your self-directed portfolio.
