Canadian utility stocks are some of the most boring investments in the stock market for investors seeking rapid wealth growth. These companies operate highly regulated businesses that don’t make an insane amount of profits. It isn’t surprising that utility stocks typically avoid the upward or downward movements in the rest of the market.
Despite not delivering substantial capital gains, utility stocks are a staple in many portfolios. The reason? These businesses offer reliable income for dividend-seeking investors. The best utility businesses are some of the top dividend stocks for Canadian investors.
The essential nature of the services of utility companies means they can continue making stable revenue even during recessions. The highly regulated nature of the market means predictable cash flows, letting management make sound financial decisions without worrying about financial uncertainties.
Today, we’ll take a look at two of the best utility stocks you can add to your self-directed investment portfolio.
Source: Getty Images
Fortis
Fortis Inc. (TSX: FTS) is the cream of the crop when it comes to Canadian utility stocks. The $32.9 billion market-cap utility holdings company owns and operates several electric and natural gas utility businesses across Canada, the US, and the Caribbean. Its portfolio mostly consists of long-term contracted assets in highly rate-regulated markets. This means stable and predictable revenue.
Fortis finds its way into most investor portfolios due to its reliable dividends. The stock has been paying its investors dividends for a long time, and payouts have increased each year for over five decades. Supported by a strong underlying business and solid business model, it looks set to continue its remarkable dividend-growth streak.
As of this writing, it trades for $65.67 per share and boasts a 3.8% dividend yield.
Hydro One
Hydro One Ltd. (TSX: H) is not your typical utility business. A newer entrant to the market, it is a pure-play electric transmission and distribution company. The company doesn’t generate the electricity it distributes to customers, limiting its exposure to volatile commodity prices. With 99% of its business highly rate-regulated, it has the kind of predictable cash flows that characterize the top utility businesses.
Hydro One stock offers far more growth in terms of capital gains than Fortis does. As of this writing, Hydro One stock trades for $49.86 per share, up by around 31% from its 52-week low. Besides better capital gains, it also offers a 2.7% dividend yield that you can lock into your portfolio.
Foolish takeaway
Canadian utility businesses might not offer much in terms of rapid wealth growth, but they offer far more long-term reliability than any growth stocks. While attractive, growth stocks come with plenty of risk. My advice would be to set up a strong foundation with reliable dividend stocks. This way, you can offset potential losses when adding growth stocks to your self-directed investment portfolio. To this end, Fortis stock and Hydro One stock can be stellar holdings to consider.
