Power Up Your Defences: Canadian Utility ETFs for Steady Income

Looking for safe ETFs with solid income? These three are a solid place to start.

Amy Legate-Wolfe

Author Bio Amy became interested in investing in 2018 after having her first daughter. After receiving a masters degree in journalism from Western University, she became frustrated that the finance industry remained a confusing place for Canadians like her: new parents, millennials, and other young people who needed to understand their finances. Now, Amy focuses on tech companies and renewable energy for growth opportunities, coupling that with long-term investing strategies and equities. She also provides investors with a daily newsletter, Canada Stock Digest, for daily market updates. Before joining Motley Fool Canada, she wrote for major news organizations including HuffPost, CTVNews.ca, and CBC. When she’s not researching investing strategies, Amy’s time is pretty much monopolized by her two wild daughters, but in what little spare time she has she loves to do yoga, go on walks with her dog, and travel with her husband. Social Media Follow Amy on LinkedIn and Canada Stock Digest. Favorite Investment Quote “October: This is one of the particularly dangerous months to speculate in stocks. The others are July, January, September, April, November, May, March, June, December, August and February.” – Mark Twain

Published March 6, 2025 9:00 pm EST

Looking to build a defensive portfolio that provides steady income? Canadian utility exchange-traded funds (ETF) are an excellent option. The utility sector in Canada is renowned for its stability, driven by its essential nature. People will always need electricity, water, and natural gas. This consistent demand makes utility companies a reliable source of dividends, offering investors a strong foundation for long-term income. So let’s dive into three prominent utility ETFs to help you decide how to power up your defensive strategy.

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The ETFs

The iShares S&P/TSX Capped Utilities Index ETF (TSX:XUT) focuses on the largest utility companies in Canada. The fund aims to provide investors with exposure to the utilities sector. This includes electric and gas utilities, which traditionally offer strong dividend yields. The ETF has shown a 2.2% year-to-date (YTD) return, plus a 4.1% yield, making it a solid choice for those looking for passive income. With a price-to-earnings (P/E) ratio of 0.05 and a price-to-book ratio of 0.62, XUT is currently valued attractively, particularly for long-term investors.

Another key player in the Canadian utility ETF market is the BMO Equal Weight Utilities Index ETF (TSX:ZUT). ZUT offers an equal-weighted approach, which spreads risk more evenly across its holdings. Thus the fund is an excellent option for those who want diversified exposure to the sector. The ETF provides a 4.27% yield, and its YTD return stands at 1.20%. The P/E ratio of 0.05 and price-to-sales ratio of 0.65 indicate that ZUT offers a reasonable entry point. This is especially opportune for investors looking to tap into the Canadian utility sector while securing steady dividends.

For those looking for broader exposure to dividend-paying companies, Hamilton Enhanced Multi-Sector Covered Call ETF (TSX:HDIV) offers an interesting mix. The ETF also has a drool-worthy 11% forward dividend yield. This can be appealing for income-focused investors. Despite its focus on a broader range of dividend stocks, the ETF still provides exposure to the defensive utility sector and can offer additional diversification in your portfolio.

Peak performance

Looking at the past performance of these ETFs, it’s clear that utility stocks have been a reliable source of income. Over the past three years, XUT has seen steady returns, with its performance consistently mirroring the strong, predictable nature of utilities in Canada. ZUT and HDIV also continue to provide attractive returns for dividend-seeking investors, with both offering steady income, even during challenging market conditions. These ETFs have all outperformed the S&P/TSX Composite Index in recent years, reinforcing the utility sector’s resilience and potential for growth.

The future outlook for these ETFs remains positive, given the continued importance of utilities in the Canadian economy. As the transition to green energy continues, utilities are well-positioned to benefit from increased demand for sustainable energy sources. This long-term growth potential could drive further returns for utility ETFs. Additionally, Canada’s commitment to infrastructure development and the growing need for reliable power supply point to a solid outlook for utility stocks, thus making XUT, ZUT, and HDIV great candidates for income-focused portfolios.

Bottom line

While utility ETFs are generally considered safe investments, it’s essential to consider the potential risks. Changes in government policy, regulatory concerns, or rising interest rates could impact utility companies’ profitability and, in turn, the performance of these ETFs. However, with strong governance and an increasing push towards clean energy, the Canadian utility sector is well-placed to continue performing well.

Altogether, Canadian utility ETFs like XUT, ZUT, and HDIV offer a great way to build a defensively oriented portfolio that generates steady income. Whether you’re looking for exposure to the top Canadian utility stocks or prefer a broader mix of dividend-paying companies, these ETFs provide reliable dividends with lower volatility. With strong performance records, positive future outlooks, and high dividend yields, these ETFs are savvy ways to power up your defence and secure consistent income for the long term.