The sharp decline in metal prices, coupled with the appointment of Kevin Warsh—widely perceived as a hawkish policymaker—as the new Federal Reserve chair, appears to have dampened investor sentiment, triggering a broad selloff on Friday. As a result, the Canadian benchmark S&P/TSX Composite Index fell 3.3% and is now only marginally higher, up 0.2% year to date.
Adding to the pressure are ongoing geopolitical tensions and concerns over the impact of protectionist policies on global economic growth. Against this uncertain backdrop, investors may want to focus on strengthening their portfolios with defensive stocks. Given their essential services and regulated asset bases, utility companies are well-positioned to provide stability during periods of market volatility.
With that in mind, let’s examine the financial performance, dividend track records, valuations, and growth prospects of Fortis (TSX: FTS) and Canadian Utilities (TSX: CU) to determine which utility stock offers a more attractive buying opportunity right now.
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Fortis
Fortis is an electric and natural gas utility serving approximately 3.5 million customers across the United States, Canada, and the Caribbean through its nine regulated assets. With the majority of its assets concentrated in low-risk transmission and distribution operations, Fortis’s financial performance is less sensitive to economic cycles and market volatility, enabling it to generate stable, predictable cash flows. Supported by this consistency, the company has delivered an average annual total shareholder return of 9.5% over the past 20 years. In addition, Fortis has increased its dividend for 52 consecutive years and currently offers an attractive forward dividend yield of 3.53%.
Fortis continues to expand its regulated asset base through a five-year capital investment program totaling $28.8 billion. These investments could drive its rate base growth at an annualized rate of approximately 7%, reaching $57.9 billion by the end of 2030. Complementing this expansion, the company has implemented several cost-efficiency initiatives, including enhanced preventive maintenance, operational efficiency programs, and energy transition investments to generate fuel savings. Together, these initiatives support earnings growth and underpin management’s expectation of 4–6% annual dividend growth for the remainder of the decade.
Canadian Utilities
Canadian Utilities is a diversified energy infrastructure company engaged in the generation, transmission, and distribution of electricity and natural gas. In addition, it provides energy storage services and industrial water solutions. Supported by its largely regulated asset base, the company has delivered consistent financial performance and achieved steady cash flow growth. Reflecting this stability, Canadian Utilities has generated an average annual shareholder return of 8.2% over the past 20 years. It has also increased its dividend for 53 consecutive years and currently offers an attractive forward dividend yield of 4.20%.
Looking ahead, Canadian Utilities continues to expand its asset base through a three-year capital investment program totaling $5.8 billion, extending through 2027. These investments are expected to grow its rate base at a compound annual rate of 5.4% over the same period. This ongoing expansion should support the company’s earnings and cash flow growth, reinforcing the sustainability of its future dividend payouts.
Investors’ takeaway
Utilities have delivered strong performance over the past 12 months, benefiting from interest rate cuts that tend to favour capital-intensive businesses. During this period, Fortis has generated a total return of 21.6%, while Canadian Utilities has outperformed with a return of 36.3%. However, this strong buying momentum has also pushed valuations higher for both companies.
Fortis currently trades at next-12-month (NTM) price-to-sales and price-to-earnings multiples of 2.8 and 21.1, respectively. By comparison, Canadian Utilities trades at corresponding multiples of 2.9 and 17.8.
While both stocks offer attractive defensive investment opportunities, I am more bullish on Fortis due to greater visibility into its long-term growth trajectory and a stronger track record of shareholder returns over the past two decades.
