After witnessing a substantial decline in April, the Canadian equity markets have rebounded strongly, with the S&P/TSX Composite Index trading 10.9% higher year-to-date. However, concerns persist over protectionist policies and their impact on global growth. Meanwhile, if you are also concerned about the uncertain outlook, you can consider purchasing the following three utility stocks, which are less susceptible to fluctuations in the macroeconomic environment.
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Fortis
Fortis (TSX: FTS) is involved in the low-risk transmission and distribution business, serving the electric and natural gas needs of 3.5 million customers across Canada, the United States, and the Caribbean. Most of its assets are regulated, thereby making its financials less susceptible to market volatility. Additionally, the company’s expanding rate base has supported its financial growth, thereby driving its stock price.
Meanwhile, FTS stock has delivered an average total shareholders’ return of 10.2% over the last 20 years. The stock has also rewarded its shareholders by consistently raising its dividends for the past 51 years. Its forward dividend yield stands at 3.71% as of the July 23 closing price.
Furthermore, the rising demand for electricity and natural gas, driven by rapid urbanization, the electrification of transportation, and increasing income levels has created long-term growth potential for Fortis. Meanwhile, the electric and natural gas utility company continues to expand its rate base with a capital investment of $26 billion, which is expected to span from 2025 to 2029. These investments could grow its rate base at an annualized rate of 6.5%. Additionally, customer rate hikes and improvements in operating efficiency could support its financial growth in the coming years. Driven by these growth initiatives, Fortis’s management is confident of raising its dividend by 4–6% annually through 2029. Considering all these factors, I believe Fortis would be an excellent buy for risk-averse investors.
Hydro One
Another utility stock that I am bullish on is Hydro One (TSX: H), a pure-play electricity transmission and distribution company. It has no material exposure to commodity price fluctuations while operating 99% of its business through rate-regulated contracts. The hydro producer’s expanding rate base, achieved through self-funded organic growth, has boosted its financial performance, thereby driving its stock price and allowing the company to pay dividends at a healthier rate. Over the last five years, H stock has delivered a total shareholders’ return of approximately 105% at an annualized rate of 15.4%.
Furthermore, Hydro One is continuing with its capital investment of $11.8 billion, which is expected to grow its rate base at an annualized rate of 6.6% through 2027. Along with these expansions, improving operating efficiency and favourable customer rate revisions could support its financial growth. Meanwhile, management projects its adjusted EPS (earnings per share) to grow at a 6–8% CAGR (compound annual growth rate) and is also confident of raising its dividends by 6% annually through 2027. Considering all these factors, I believe Hydro One would be an excellent buy.
Canadian Utilities
My final pick would be Canadian Utilities (TSX: CU), which has raised its dividend consistently for 53 consecutive years. It is a diversified energy infrastructure company with a low-risk electricity and natural gas transmission and distribution business, as well as exposure to clean energy production and storage. It sells most of the power produced from its facilities through long-term power purchase agreements (PPAs). Therefore, the company generates stable and reliable financials and cash flows, enabling it to raise its dividends consistently. With a quarterly dividend payout of $0.4577/share, CU stock’s forward dividend yield stands at 4.7%.
Moreover, CU has planned to make a capital investment of $5.8 billion over the next three years to grow its rate base at an annualized rate of 5.4% through 2027. Furthermore, the company has a development pipeline of 1.5 gigawatts of power-producing facilities. It plans to invest around $2.5 billion over the next nine years to increase its power-producing capacity to 2 gigawatts. Considering all these factors, I believe CU could continue paying dividends at a healthier rate, thereby making it an attractive investment.
