Utility companies offer essential services, such as meeting people’s electric, natural gas, and water needs. Due to their highly regulated business and evergreen demand, their financials are less prone to economic cycles. These companies deliver stable and reliable cash flows, thus making their dividend payouts safer. Against this backdrop, let’s look at my three top picks.
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Hydro One
Hydro One (TSX: H) is a pure-play electric transmission and distribution company with no substantial exposure to commodity price fluctuations. With 99% of its business rate regulated, the company generates stable and predictable financials, regardless of macroeconomic cycles. Additionally, the company has grown its rate base at an annualized rate of 5.1% since 2018, thereby enhancing its financials and cash flows. Supported by these healthy financials, the company has returned approximately 213% over the last seven years, at an annualized rate of 17.7%. Additionally, the company has increased its dividends at a 5.2% compound annual growth rate (CAGR) during this period and currently offers a dividend yield of 2.47%.
Meanwhile, the demand for electricity is rising amid increased electrification, driven by growing awareness of rising pollution levels, technological advancements, and favourable government policy changes. Amid demand growth, Hydro One is continuing with its $11.8 billion capital investment plan and could grow its rate base at an annualized rate of 6.6% to $32.14 billion by 2027. Along with these expansion initiatives, the company’s cost-cutting measures could support its profitability growth and dividend expansion.
Fortis
Fortis (TSX: FTS) operates 10 regulated electric and natural gas utility assets, serving 3.5 million customers across Canada, the United States, and the Caribbean. The utility company has expanded its rate base, which has boosted its financial and stock price growth. Over the last 20 years, the company has delivered an average shareholder return of 10.3%. Additionally, the company has maintained uninterrupted dividend payments for 51 years and currently offers a forward dividend yield of 3.69%.
Furthermore, Fortis plans to invest $26 billion over five years to grow its rate base at an annualized rate of 6.5%, reaching $53 billion by the end of 2029. Along with these growth initiatives, favourable customer rate revisions and improved operating efficiency could support its financial growth in the coming quarters. Amid these healthy growth prospects, Fortis’s management expects to raise its dividends by 4-6% annually through 2029, making it an excellent buy.
Canadian Utilities
Canadian Utilities (TSX: CU) is a diversified energy infrastructure company that transports and distributes electricity and natural gas. It is also involved in the power production and storage business. Supported by its regulated utility assets and long-term PPAs (power purchase agreements), the company’s financials are less prone to market volatility, which has enabled it to raise its dividends for 53 consecutive years. Its forward dividend yield also looks reasonable at 4.77%.
After making a capital investment of $1.4 billion in 2024, Canadian Utilities plans to invest approximately $5.8 billion over the next three years, growing its rate base at an annualized rate of 5.4% through 2027. Additionally, the company plans to invest approximately $2.5 billion through 2033, increasing its power production capacity by 1.5 gigawatts. These growth initiatives could continue to drive its financials, thereby supporting its future dividend payouts and stock price growth. Considering all these factors, I believe Canadian Utilities would be an ideal buy in this uncertain outlook.
