The utility sector is one I think investors would do well to consider right now. As a way to play surging energy demand driven by the rise of artificial intelligence technology, this sector is one that has newfound growth catalysts, which are worth considering.
Additionally, most of the companies in this sector have among the best balance sheets in the market, with plenty of dividend growth ahead. Let’s dive into three of the best utility stocks investors can consider for big gains over the long term.
Fortis
In the utility sector, Fortis (TSX:FTS) continues to be my top pick for long-term investors.
My thesis for years has surrounded the company’s impressive dividend-growth profile. That catalyst still stands as core to this company’s investing thesis. With more than 50 consecutive years of dividend increases, investors buying Fortis’s 3.5% yield can rest assured that this yield will climb over time.
In contrast to bonds, which pay a fixed yield, investors can benefit from both interest rates coming down (which positively affects bonds) as well as the capital appreciation upside of such a name via its aforementioned growth upside. This is one of my top long-term picks, and right now appears to be a solid time to consider adding exposure to this name.
Hydro One
Another top Canadian utility giant, Hydro One (TSX:H) focuses mostly on Eastern Canadian regional natural gas and electricity distribution to a large clientele.
Because the company is so focused on a particular region that investors outside of Canada may not be familiar with, this is a stock that I’d suggest has flown under the radar for some time. That’s led to a juicy valuation multiple of 23-times earnings. That’s even more impressive, given the run this stock has been on of late (see chart above).
Now, Hydro One only provides investors with a 2.5% dividend yield. However, given the fact that the regions Hydro One serves have some of the lowest electricity prices in the market, I’d expect a higher growth profile for this name as commercial customers flock to Eastern Canada for cheap power. Thus, the AI growth catalyst I mentioned at the start really applies here, and Hydro One is an excellent option for those thinking along these lines.
Canadian Utilities
Last, but not least, we have Canadian Utilities (TSX:CU).
The company’s name says just about all investors need to know about this top Canadian utility company. However, with a 4.2% dividend yield and a valuation that’s better than the first two picks on this list, I’d argue that Canadian Utilities could be positioned for even better upside than the prior two picks, though I’d suggest doing a deep dive on each to feel out which fits one’s portfolio the best.
I think a portfolio consisting of all three stocks may be worth considering for those looking to create a stock picker’s portfolio. While exchange-traded funds hold broadly diversified baskets of utility stocks, I think that some companies will outperform the rest. Canadian Utilities and its peers remain some of the best options in the market right now, in my view.
