Utility stocks are known for their high leverage and stable cash flows. A key measure of utility companies is the rate base, which includes the assets directly involved in delivering utility services. A utility company’s revenue depends on the rate base and the rate of return. They have to get regulatory approval to charge a specific rate for utility services.
Utility stocks are good defensive stocks because of their boring business model. However, this stock suddenly became very profitable after 12 years of downturn and recovery. Its stock price surged 24% year to date, outperforming the 15% rally of the TSX Composite Index.
AltaGas (TSX: ALA) stock underwent a series of downturns from 2014 to 2019, followed by a recovery rally till 2025. However, the stock surged significantly in 2026, beating the rally of other utility stocks except ATCO. Driving AltaGas’s stock is strong demand for liquefied petroleum gas (LPG) in Asia.
| Particulars | ATCO | AltaGas | Canadian Utilities | Emera | Capital Power | Fortis | Hydro One |
| Stock Price | $74.370 | $52.250 | $51.700 | $69.020 | $65.680 | $75.590 | $53.250 |
| Dividend Yield | 2.79% | 2.56% | 3.58% | 4.25% | 4.29% | 3.39% | 2.65% |
| YTD Growth | 31.47% | 23.90% | 20.82% | 2.10% | 9% | 6.09% | -2.19% |
Source: Getty Images
The utility stock that turned very profitable
Before 2019, AltaGas was in the business of power and natural gas transmission and distribution. However, the 2018 acquisition of Washington Gas for $9 billion, alongside high capital expenditure in natural gas pipeline projects, made AltaGas’s debt unmanageable. The utility decided to offload power transmission assets and use the proceeds to reduce debt from 11 times adjusted net debt to earnings before interest, taxes, depreciation, and amortization (EBITDA) to 4.4, which is below its target range of 4.4 to five times.
All the investment in natural gas transmission is finally paying off as natural gas prices rise and Canada increases exports to Asia. AltaGas LPG exports to Asia surged 13% year-over-year to a record 144,420 barrel/day in the second quarter of 2026. Its Ridley Island Energy Export Facility (REEF) Phase 1 project is 85% complete and is targeted to commence in the first quarter of 2027. This project was one of the reasons for AltaGas’s high debt, as it went 12% over budget. AltaGas has also been modernizing its utilities platforms. However, this time it is being disciplined with its capital allocation.
Its normalized EBITDA increased 6% year over year as global export volumes and margins surged because of the Iran war. AltaGas margins also improved as its pending Virginia and D.C. rate cases were approved. Thanks to the approvals, the company has increased its 2026 normalized EBITDA and earnings per share outlook by 4% and 6%, respectively.
Is AltaGas a good investment?
The U.S. and Canadian utilities are seeing a surge in demand from data centres. However, the nature of utilities is such that accelerated capacity expansion depresses earnings in the short term. This is because of regulatory delays in approving capital expenditure and rate cases. That delay often increases construction costs in a high-inflation environment.
Nevertheless, the midstream business presents strong expansion opportunities with LNG exports. Canada’s nation-building program aims to fast-track strategically important projects, including infrastructure for LNG exports like Woodfibre LNG. As these projects come online, they will open new long-term cash flow streams.
AltaGas has announced two rail terminal partnerships with Tourmaline and Keyera. The new developments should be priced in cautiously, as regulatory and construction delays could lock in significant capital, thereby reducing returns on projects. Investors should keep an eye on AltaGas’s balance sheet strength.
The pending rate case approvals by regulators could unlock significant income. Hence, you could see different growth spurts for different utility companies.
For AltaGas, 2026 is the year when rate case approvals are driving retail margin. However, it cannot be said with accuracy whether the stock can sustain its rally. Hence, it may not be a good decision to rely heavily on utility stocks for growth or passive income.
How to place utility stocks in your portfolio
Utility stocks are defensive as they give dividends even in a crisis. However, they are not good dividend growth drivers given the delays in getting rate case approvals. Note that many utility companies have slashed dividends in the last decade due to high leverage. Invest only to hedge against economic risks.
