Utility stocks are back in vogue after a new tariff war has made the stock market extremely volatile. You don’t own utility stocks for growth or big capital gains. You own them for dividend income and stable stock performance.
You don’t own utilities for growth but for stability
The best utilities have a large base of regulated earnings. In many instances, utilities operate as monopolies in their jurisdictions. They provide a steady, reliable service, and the government will guarantee a certain rate of return.
The best utilities don’t grow quickly. Rather, they take their time, smartly invest in capital projects, and then collect a steady, reliable stream of earnings. If you are looking for some quality utilities to buy, here are three to buy and hold for years.
A top Canadian utility with a long dividend record
If there is ever a list of top Canadian utilities, Fortis (TSX:FTS) has to be near the top. It has grown its annual dividend for 51 consecutive years. The stock has earned investors a 600% total return over the past 20 years. That comes to a 10% compounded annual growth rate.
Recently, returns have slowed. It has delivered closer to a 6% compounded annual total return in the past five years. The stock has been getting a bid ever since tariffs started to become a threat.
Investors are rushing to safety. Fortis is a low-beta stock, which means it tends to have less volatility than the broader market. 99% of its business is regulated. With a portfolio of high-end transmission and distribution utilities, it is a very safe bet.
You aren’t going to get huge capital returns with this stock. But you will collect a great growing stream of dividends for years ahead. It yields 3.8% today.
A mix of growth and income
AltaGas (TSX:ALA) is another excellent Canadian utility stock. This company has transformed in the past few years.
Today, it operates four high-quality natural gas utilities in the United States. That makes up 55% of its earnings. It also has an economically crucial midstream business in Western Canada that makes up the remainder of its earnings.
It has great assets, and its utility business should enjoy above-industry-average growth in the years ahead. Natural gas prices have been doing better due to a cold winter, so that has provided a boost to earnings.
Over the past five years, AltaGas has drastically reduced debt. Today, it has a very sustainable balance sheet and a very sustainable dividend.
Ever since 2020, it has increased its dividend annually. It expects 5-7% per annum dividend growth for the near future. It yields 3.5% today.
A “utility-like” stock for value, income, and growth
If you don’t mind a little more risk for a little more long-term upside, Secure Waste Infrastructure (TSX:SES) might be a “utility-like” business to consider. By definition, Secure is not a utility. However, it provides a crucial service like utilities do.
Secure operates waste, wastewater processing, and metal recycling centers across Western Canada. It is a major provider to energy production companies that must manage excess waste that results from drilling and well activities. It operates a near monopoly in the regions it operates. Around 80% of its business is recurring or contracted.
It has a very clean balance sheet. Its stock is very cheap (especially compared to other waste peers), and it has been aggressively buying back stock.
Collect a 3% dividend yield while you wait for the market to recognize the quality and value of this good-quality business. This stock is more volatile than the ones above, but that could also work to the upside for patient investors.
