Top 3 Canadian Utility Dividend Stocks for 2020

Utilities 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.

TickerKeyTickerCompanySectorIndustryScoreQuoteMarket CapP/EFPEEPSYield RawYieldPayoutRatioPaymentsDividendChowderGrowthRatingIncomeRatingTollboothAmbassadorAchieverAristocratKingCountryGraph
TSE:FTSFTSFortisUtilitiesUtilities - Regulated Electric0.7051.1723.7719.2419.242.660.03953.950.759442.020.097567Tollbooth - RegulatedNOYESYESNOCanada1
TSE:BIP.UNBIP.UNBrookfield Infrastructure PartnersUtilitiesUtilities - Diversified0.7263.6720.9379.4979.490.800.04294.293.412842.150.134987Tollbooth - RegulatedYESYESNONOCanada1
TSE:HHHydro OneUtilitiesUtilities - Regulated Electric0.5129.3417.539.679.673.030.03463.460.334841.010.076436Tollbooth - RegulatedNONONONOCanada1
TSE:BEP.UNBEP.UNBrookfield Renewable Partners L.P.UtilitiesUtilities - Renewable0.3562.0817.060.000.00-0.680.03553.551.000041.740.064825Tollbooth - UnregulatedNONONONOCanada1
TSE:EMAEMAEmeraUtilitiesUtilities - Diversified0.7752.1713.1014.9114.913.500.04894.890.728642.550.108769Tollbooth - RegulatedNOYESYESNOCanada1
TSE:AQNAQNAlgonquin Power & Utilitties CorpUtilitiesUtilities - Renewable0.6921.8213.0320.8620.861.050.03613.610.750340.620.122878Tollbooth - UnregulatedNONOYESNOCanada1
TSE:BEPCBEPCBrookfield Renewable Partners L.P.UtilitiesUtilities - Renewable0.3479.2810.740. - UnregulatedNONONONOCanada1
TSE:NPINPINorthland Power Inc.UtilitiesUtilities - Renewable0.4050.8010.2527.0027.001.880.02362.360.6383121.200.034234Tollbooth - UnregulatedNONONONOCanada1
TSE:CUCUCanadian UtilitiesUtilitiesUtilities - Diversified0.6931.258.5720.9720.971.490.05575.571.168941.740.147168Tollbooth - RegulatedNOYESYESNOCanada1
TSE:RNWRNWTransAlta Renewables Inc.UtilitiesUtilities - Renewable0.4023.626.3171.9271.920.330.03983.982.8473120.940.061934Tollbooth - UnregulatedNONOYESNOCanada1
TSE:BLXBLXBoralex Inc.UtilitiesUtilities - Renewable0.2855.315.672049.282, - UnregulatedNONOYESNOCanada1
TSE:INEINEInnergex Renewable Energy IncUtilitiesUtilities - Renewable0.3932.155.610.000.00-0.650.02242.241.000040.720.022446Tollbooth - UnregulatedNONOYESNOCanada1
TSE:ALAALAAltaGasUtilitiesUtilities - Regulated Gas0.6018.985.3015.9215.921.190.05065.060.8067120.960.050636Tollbooth - RegulatedNONONONOCanada1
TSE:ACO.XACO.XAtcoUtilitiesUtilities - Diversified0.6936.824.2415.7515.752.340.04734.730.743941.740.171567Tollbooth - RegulatedYESYESYESNOCanada1
TSE:CPXCPXCapital Power CorporationUtilitiesUtilities - Independent Power Producers0.6636.083.8214.7614.762.440.05685.680.840242.050.128858Tollbooth - UnregulatedNONOYESNOCanada1
TSE:TATATransAltaUtilitiesUtilities - Independent Power Producers0.1510.602.310.000.00-0.380.01601.601.000040.170.016003Tollbooth - UnregulatedNONONONOCanada1
TSE:SPBSPBSuperior PlusUtilitiesUtilities - Regulated Gas0.3812.702.2433.2333.230.380.05675.671.8947120.720.056714Tollbooth - RegulatedNONONONOCanada1

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. The flock has already bought the utilities throughout 2019 and 2020 due to low interest rates and therefore driving the prices to their 52-week high.

#1 – Algonquin Power & Utilities Corp

AQN - Algoquin Power & Utilities CorpAlgonquin 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. It also has renewable energy business.

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 through its subsidiaries owns an equity interest in more than 39 clean energy facilities. Algonquin Power operates through two subsidiaries: Liberty Utilities (64% of 2018 earnings) and Liberty Power (36%).

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.

Investment Data

#2 – Fortis

FTS - FortisFortis 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.

ITC Holdings is the largest independent electricity transmission company in the U.S. Fortis caters to 3.3 million utility (2 million electric utility customers and 1.3 million gas utility customers) across North America. The company is known for its highly regulated, low risk and diversified utility businesses.

Investment Data

#3 – Brookfield Infrastructure

BAM - Brookefield Asset ManagementBrookfield Infrastructure Partners is one of the largest owners and operators of infrastructure networks globally. The firm acquires good quality businesses, restructures its operations and subsequently sells them.

Brookfield’s business units include real estate, infrastructure, renewable power, and private equity. Brookfield Infrastructure’s key segments are utilities (39% of total FFO), transport (39%), energy (31%), data infrastructure (8%), and corporate (-17%).

The firm has a diversified portfolio of high quality and long life assets spread geographically across North and South America, Asia Pacific and Europe. The firm is highly diversified by sectors and geographies which reduces volatility and safeguards against any market fluctuation.

Brookfield Infrastructure focuses on the ownership of stable cash flow generating assets operating under regulated frameworks. The firm is in a good position to benefit from strong infrastructural development across the world. The firm’s objective is to generate an equity return of 12%-15% in the long term and grow its annual distribution by 5%-9%.

Investment Data

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.

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

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

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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.