Most Canadian investors have never heard of Caribbean Utilities (TSX: CUP.U), but this Caribbean utility stock is a hidden gem quietly offering one of the most compelling passive income investment opportunities on the Toronto Stock Exchange. It shares a lot in common with mighty Fortis (TSX: FTS) stock, and following a fresh 5% dividend hike in 2026, Caribbean Utilities stock has achieved a dividend growth spree that elevates its status.

Caribbean Utilities boasts an uninterrupted dividend payout history stretching back to 2005 alongside five consecutive years of dividend increases this year. Backed by long-term operating licenses that can extend through 2048, this offshore power provider delivers steady, high-yielding passive income that could comfortably sustain income portfolios for decades.

CUP.U Dividend data by YCharts

The mini-Fortis stock trading under the radar

Valued at roughly US$620 million ($868 million), Caribbean Utilities stock flies under the radar largely due to its small-cap size. Income investors naturally flock to mega-cap utility titans like $38 billion Fortis, which celebrated its impressive 52nd consecutive annual dividend raise in 2026.

However, investors who already hold Fortis stock actually own a piece of this Caribbean operation, as Fortis maintains a controlling 59.5% majority stake in the utility stock. As a key offshore regulated subsidiary, Caribbean Utilities shares the conservative corporate structure, disciplined capital allocation, and steady management principles of Fortis, its parent company.

An island monopoly to buy for USD-backed passive income

The main reason Canadians rarely encounter Caribbean Utilities’ brands and services comes down to simple geography. The utility generates, transmits, and distributes electricity across Grand Cayman in the Cayman Islands, located roughly 2,500 kilometres away from the nearest Canadian shore.

Canadian investors will never see its service trucks in Toronto or Calgary, but its economic moat is every bit as dependable as a domestic Canadian utility stock.

Operating under a 100% regulated utility model, Caribbean Utilities avoids the pricing volatility of merchant power markets. Instead, its cash flows are predictable and derived from a regulatory target return on equity applied directly to its invested capital base.

Beyond operational stability, the stock offers a distinct currency advantage for Canadian investors building a reliable passive income stream.

The utility’s operating currency, the Cayman Islands Dollar, is pegged to the U.S. dollar, and Caribbean Utilities trades on the TSX in U.S. currency while paying out U.S. dollar-denominated dividends.

While Fortis stock generates over half its earnings in United States dollars but pays dividends in Canadian dollars, Caribbean Utilities stock provides direct exposure to U.S. dollar cash flows.

Should you buy the TSX utility stock for its top sector yield?

Caribbean Utilities stock truly shines for its above-average dividend yield, sustained raises for five consecutive years that could make it comparable to dividend-growth champions, and sustainable payout levels.

Given its dividend yield of 5.5%, the small utility stock offers the highest yield in the Canadian utility stock peer group. By comparison, Fortis stock yields around 3.4%, Canadian Utilities stock sits at 3.6%, Emera stock offers 4.3%, Capital Power stock yields 4.6%, Algonquin Power & Utilities stock pays 4.8%, while infrastructure giant Brookfield Infrastructure Partners stock’s dividend yields 5%.

Importantly, Caribbean Utilities stock’s market-beating passive income stream doesn’t come at the cost of operational strength. During the first half of 2026, Caribbean Utilities reported a 5% year-over-year increase in total operating revenues and a 17% surge in net earnings. The Fortis-related utility maintains its dividend payout ratio under 70%, leaving plenty of headroom to reinvest in grid modernization while safeguarding its growing quarterly payout.

Supported by a 20-year transmission and distribution license renewable through 2048 and a generation license valid through 2039, Caribbean Utilities stock appears as an attractive, low-profile, Fortis-related TSX utility stock to buy for long-term passive income.

The post Why This Canadian Utility Stock Could Be the Best Stock You Never Think About appeared first on The Motley Fool Canada.

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Fool contributor Brian Paradza has no position in any of the stocks mentioned. The Motley Fool recommends Brookfield Infrastructure Partners, Capital Power, Emera, and Fortis. The Motley Fool has a disclosure policy.