Utility companies play a vital role in the economy by providing essential services such as electricity, natural gas, water, and wastewater management. Because demand for these services remains relatively resilient across economic cycles, utilities typically generate stable earnings and predictable cash flows, making them attractive to investors seeking dependable long-term returns.
However, utilities generally offer less growth potential than more growth-oriented businesses. Their capital-intensive operations require substantial ongoing investments to maintain and expand infrastructure. Moreover, regulated pricing frameworks can limit their ability to raise rates freely, potentially constraining profit margins and equity returns.
Nevertheless, utilities can play an important role in portfolios during periods of heightened market volatility. Persistent inflation, elevated bond yields, trade tensions, and geopolitical uncertainty in the Middle East have increased market risks, underscoring the appeal of businesses with defensive characteristics, predictable cash flows, and reliable dividend payouts. Against this backdrop, let’s examine two Canadian utility stocks that could offer attractive opportunities.
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Fortis
Fortis (TSX: FTS) operates nine utility businesses serving approximately 3.5 million electricity and natural gas customers across Canada, the United States, and the Caribbean. With most operations regulated and focused on low-risk transmission and distribution, Fortis generates relatively predictable earnings and cash flows, limiting exposure to economic cycles and market volatility. This resilient business model has supported an average annual shareholder return of approximately 9.8% over the past 20 years. Fortis has also maintained its dividend growth since 1973 and currently offers a forward yield of about 3.4%.
Looking ahead, expanding AI infrastructure, transportation electrification, economic growth, and population growth could drive electricity demand. To capitalize on these trends, Fortis is executing a $28.8 billion capital investment plan, which could expand its rate base at an annualized rate of approximately 7% to $57.9 billion by 2030. Continued focus on operational efficiency, disciplined capital allocation, and innovation should further support financial performance.
Reflecting its growth outlook and strong cash-flow visibility, management hopes to raise its dividend at an annualized rate of 4%–6% through 2030, reinforcing Fortis’s appeal as a long-term income and growth investment.
Hydro One
Another utility stock that could appeal to long-term investors is Hydro One (TSX: H), which serves approximately 1.5 million customers across Ontario. As a pure-play electricity transmission and distribution utility, Hydro One generates roughly 99% of its revenue under a regulated framework and has no exposure to power generation. This business model limits its sensitivity to commodity-price fluctuations and broader economic cycles. Moreover, the company has expanded its asset base at an annualized rate of approximately 5% since 2018, supporting steady financial growth. Reflecting its resilient performance, Hydro One has delivered a total return of 94.5% over the past five years, representing an annualized return of 14.3%. It has also increased its dividend at an annualized rate of 5.4% since 2017 and currently offers a forward yield of approximately 2.8%.
Looking ahead, rising electricity demand should create opportunities for further infrastructure expansion. Hydro One currently has 15 transmission projects at various stages of development and construction, while Ontario’s population growth and expanding housing market could support continued investment in its distribution network. The company is also advancing an $11.8 billion capital investment plan, which could expand its rate base at an annualized rate of approximately 6% to $32.5 billion through 2027.
With visible growth opportunities and predictable cash flows, management expects to sustain dividend growth of approximately 6% annually through 2027, further strengthening Hydro One’s long-term investment appeal.
