Best Canadian Utility Stocks: July 2022 Update

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Dividend Earner

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Utility companies play a significant role in our day to day life. They are in fact the equivalent to the blood in our veins when it comes to our world’s infrastructure. Take the power down and not much works and we are in the dark ages. As a business, there is nothing more stable in our world than utilities.

As an investors, it can get confusing to find the appropriate utility stock for your portfolio. It’s understandable as it could be confusing finding the one that fits your portfolio.

Should you pick the largest by market capitalization? Should you pick the highest yield utility? How about the one with the best consistent dividend growth?

Overall, utility stocks will provide a good dividend and if you can DRIP, you will be able to compound your holdings at a good rate. Be aware that while utility stocks pay a good dividend, they are sensitive to the interest rates.

They are a proxy to income for many investors. Utility stocks have a place in a portfolio and more so in a retirement portfolio when investing for income. See below for a list of dividend paying utility stocks.

I caution investors about falling in love with utilities. While they provide a good dividend income and have seen good stock appreciation in the recent years, they are not growth stocks. Just like the telecoms, they are regulated and growth usually come from acquisitions or from venturing in other businesses.

As an example, telecom companies started owning TV channels and created Crave TV. In the case of Telus, it ventured in the healthcare data services and Brookfield Infrastructure started investing in data centers.

I did a survey with readers and the results are shared at the end of the post.

Top 3 Utility Dividend Stocks

My approach to valuing dividend stocks is heavily biased towards the Chowder Score which takes into account the consistency of the dividend increases and the dividend growth. Below are the top picks for a solid investment.

For valuation of utility stocks, it’s important you review the free cash flow (not displayed below) as it is better than looking at earnings. It would be nice if we could evaluate all business the same way but we cannot. REITs and income trusts are evaluated through funds from operations and some capital intensive companies are better evaluated with free cash flow.

Utilities are interest sensitive stocks, keep that in mind when building your portfolio.

1. Algonquin Power & Utilitties Corp

Algonquin Power & Utilities is a diversified utility company in North America with $10 billion in total assets. The company engages in the generation, transmission, and distribution of water, gas, and electricity to communities across the U.S. 

As a growing renewable energy company, Algonquin Power owns a strong portfolio of long term contracted wind, solar and hydroelectric assets with 1.5 GW of total installed capacity.

The company has more than 50 power generation facilities and 20 utilities across North America. Algonquin’s utility business serves nearly 770,000 customers in twelve states across the U.S., through 1,200 miles of electrical transmission lines and 100 miles of natural gas transmission pipelines.

Key Investment Data

  • Ticker: TSE:AQN
  • Sector: Utilities
  • Industry: Utilities - Renewable
  • Market Cap: 10.23B
  • Market Cap Group: Large Cap
  • P/E: 38.04
  • Dividend Yield: 6.63%

2. Fortis

Fortis is a leading utility company engaging in regulated power generation, electric transmission, and energy distribution across North America.

The US accounts for about 60% of Fortis’ business while Canada constitutes the remaining 40%. About 99% of the company’s utility assets are regulated and it operates through regulated independent electric transmission (32% of 2018 earnings), regulated US electric & gas (33%), regulated Canadian & Caribbean electric & gas (40%), and non-regulated energy infrastructure (-5%) business segments.

Fortis’ assets can be divided into electric (~80% of asset mix), gas, and non-regulated energy infrastructure. It operates through 10 utility companies such as ITC, UNS Energy, Fortis Alberta, Fortis BC, etc. and serves utility customers in five Canadian provinces, nine U.S. states and three Caribbean countries.

Key Investment Data

  • Ticker: TSE:FTS
  • Sector: Utilities
  • Industry: Utilities - Regulated Electric
  • Market Cap: 25.12B
  • Market Cap Group: Large Cap
  • P/E: 19.84
  • Dividend Yield: 4.31%

3. Atco

ATCO is a diversified company providing services and business solutions globally. It is Alberta’s largest natural gas distribution company, serving approximately 1.2 million customers in nearly 300 communities.

ATCO has manufacturing facilities in Canada, the US, Chile, and Australia. The company serves more than two million customers in over 100 countries around the world. It provides integrated solutions in structures & logistics, electricity, pipelines & liquids, commercial real estate and retail energy.

ATCO owns an impressive asset base comprising of 21 power plants with a generation capacity of 2500+ MW, 87,000 km electric power lines, huge hydrocarbon storage capacity, 64,500 km natural gas pipelines, etc. Its regulated earnings have doubled to 93% in 2017 from 45% in 2012.

Key Investment Data

  • Ticker: TSE:aco.x
  • Sector: Utilities
  • Industry: Utilities - Diversified
  • Market Cap: 4.84B
  • Market Cap Group: Mid Cap
  • P/E: 13.16
  • Dividend Yield: 4.35%

Reader Interest in Utility Stocks

I did a survey to see what the interest in utility stock generally is. See below for the results.

The following chart shows the ownership of each stock by the investors surveyed. As you can see, over 50% of investors have Fortis and Algonquin Power & Utilities Corp.

Ownership of Utility Stock

The following graph shows the stocks of most interest by investors surveys. It’s the next utility they are interested in.

Interest in Utility Stocks

The following graph shows how many utility stocks investors generally hold in their portfolio.

Number of Utility Stocks Owned

Build Your OWN Top List

My portfolio is generating over 12% annual returns since 2009. It's not from the beginning of the year or from 2019, it's from 2009 !!! That's a consistent return which means using the rule of 72, I double my portfolio every 6 years.

My approach is simple but you need key data that I have cultivated with the Dividend Snapshot Screeners. No other investment services provide you with easy to understand data but also actionable data. No hidden magic.

In fact, I have tried all of the investment services for dividend investors like a crash test dummy of investment services. Just ask me, and you'll learn why there was nothing I could use out there and build the Dividend Snapshot Screeners.

DISCLOSURE: Please note that I may have a position in one or many of the holdings listed. For a complete list of my holdings, please see my Dividend Portfolio.

DISCLAIMER: Please note that this blog post represents my opinion and not an advice/recommendation. I am not a financial adviser, I am not qualified to give financial advice. Before you buy any stocks/funds consult with a qualified financial planner. Make your investment decisions at your own risk – see my full disclaimer for more details.