When the Bank of Canada is about to make a rate decision, investors tend to get jittery. Interest rates impact everything from mortgages to market sentiment, and utilities are often caught in the crossfire. That’s exactly why I’ve been looking at Capital Power (TSX:CPX). If I had $10,000 to put to work right now, I’d put it into this utility stock before the next rate announcement.
About Capital Power
Capital Power is a power producer based in Alberta. It owns and operates a mix of natural gas, wind, solar, and battery storage facilities across North America. The dividend stock has carved out a niche by focusing on flexible generation assets that can respond to shifting demand and market conditions. That’s a big deal right now, when power reliability and cleaner energy are both in high demand.
According to its first-quarter (Q1) 2025 earnings report, Capital Power is in decent shape. Net income attributable to shareholders came in at $151 million, or $1.03 per diluted share. That was down from $225 million and $1.57 per share in the same quarter last year. Operating income fell to $234 million from $320 million.
The business is also growing. In February, Capital Power closed the acquisition of two U.S. natural gas-fired facilities, bringing in 2,247 megawatts of additional capacity. The acquisition strengthens its presence in the PJM market, one of the most liquid and competitive power markets in North America. That kind of scale gives it more stability and more pricing power, both of which are valuable if interest rates stay higher for longer.
Looking ahead
Of course, no stock is risk-free, and I wouldn’t suggest Capital Power is immune to pressure. Utilities are sensitive to interest rate movements because their projects are capital-intensive. Higher rates mean higher financing costs, and that can weigh on future returns. But Capital Power has managed to issue green and hybrid bonds to lock in competitive funding, and it continues to generate strong operating cash flow to support its dividend and capital-spending plans.
Speaking of the dividend, that’s one of the biggest reasons I’d put my $10,000 into CPX. At recent prices, the stock yields close to 5%. And it’s not just the size of the payout that’s appealing, it’s the track record. Capital Power has raised its dividend every year since 2013. The current quarterly payout is $0.65 or $2.61, and the company’s target is to grow it by 5% each year through 2025. With the payout ratio sitting comfortably, there’s room for that growth to continue. And that $10,000 investment could thus bring in about $477 each year.
| COMPANY | RECENT PRICE | NUMBER OF SHARES | DIVIDEND | TOTAL PAYOUT | FREQUENCY | INVESTMENT TOTAL |
|---|---|---|---|---|---|---|
| CPX | $54.36 | 183 | $2.61 | $477.63 | Quarterly | $9,948 |
Bottom line
The market hasn’t fully appreciated what Capital Power is doing. The dividend stock is still down from its 52-week high, partly due to sector-wide concerns about rising rates and economic softness. But if you believe that the Bank of Canada is near the end of its tightening cycle, or could even cut rates later this year, utility stocks like CPX could bounce back. The high yield suddenly looks even better, and defensive names tend to shine when the market gets cautious.
So, yes, I’d put $10,000 into Capital Power right now. The yield is strong. The business is growing. And it’s diversified enough to weather bumps in the economy. With a major rate decision just around the corner, this could be a great time to lock in income and take advantage of future upside.
