8 Best Utility Stocks in Canada for April 2024

Are you looking to invest your money in Canadian utility companies but don’t know where to start?

The utility sector as a whole had a market capitalization, or total market value, of more than $1.58 trillion US dollars.

Individuals that invest in publicly-traded utility companies typically do so for the long term and benefit from the strong income stream that companies in this sector usually pay.

Below, we will outline the best utility stocks in Canada and walk you through some of their key features.

What is a Utility Stock?

A utility stock is a share of a publicly-traded company that provides critical services to virtually everyone. These services include providing:

• Gas
• Electricity
• Water

Utility companies are quite different compared to other companies you can invest in. Utility companies are often considered “regulated monopolies,” with local governments typically impacting operations to some degree.

Since these companies offer such critical services, utility stocks tend to behave differently from most regular stocks. Stocks of utility companies tend to be relatively more stable during rough market conditions but generally offer less growth during strong economic periods.

Pros and Cons of Utility Stocks

As mentioned earlier, utility stocks come with large differences compared to most other companies’ stocks. In particular, there are several key advantages and disadvantages to investing in the utility sector through stocks.

Despite these features, you should always assess whether a utility stock is a good investment on a case-by-case basis.

The Best Utility Stocks in Canada

1. Fortis Inc.

With headquarters in Newfoundland, Fortis is a well-known Canadian utility company.

The company focuses on the generation and distribution of energy to its customers. 93% of Fortis’ assets is infrastructure dedicated to supplying natural gas and electricity to clients.

Across North America, Fortis has ten independent operations. As of mid-2022, Fortis has approximately $60 billion in assets and employs over 9,000 individuals around the world.

The company works with 3.4 million clients – 2.1 million electricity clients and 1.3 million gas clients.

The company trades under the ticker FTS on the Toronto Stock Exchange and is also listed on the New York Stock Exchange under the same ticker.

The company pays an excellent forward dividend yield and has a stellar track record of increasing dividend payments for 48 consecutive years.

Fortis places a substantial emphasis on ESG – it releases an annual sustainability report and has an abundance of ESG materials on its website for investors to access.

The company plans to be net-zero in terms of greenhouse gas emissions by 2050. $3.8 billion is allocated to clean energy investments out of a $20 billion capital budget for the years 2022-2026.

Fortis trades at a fairly average forward P/E ratio and is neither expensive nor inexpensive when considering other valuation metrics.

A top utility stock choice in Canada, Fortis is a staple across many blue chip and dividend aristocrat portfolios for Canadians.

2. Brookfield Renewable Partners

Brookfield Renewable Partners is Canada’s largest renewable energy company by market capitalization. The company is a subsidiary of Brookfield Asset Management, a massive asset manager.

Brookfield Renewable focuses on:

• Hydroelectric power generation
• Solar power generation
• Energy storage facilities
• Wind power generation

Brookfield Renewable is aiming to increase dividends at an annualized rate of between 5% and 9% yearly. The company is strongly capitalized and has roughly $4 billion in available liquidity.

In terms of electrical capacity, the company is currently generating 21 gigawatts, with projects under development in order to increase capacity by an additional 69 gigawatts. Brookfield Renewable’s energy generation currently is enough to avoid the annual emissions of New York City.

The stock is currently paying a great forward dividend yield and will likely continue to be a top name within the renewable energy space in Canada.

With a strong lead in the renewable energy space and diversified operations globally (not just in Canada), Brookfield Renewable Partners is a great stock to consider for a utilities portfolio.

3. Northland Power Inc.

Since 1987, Northland Power has been developing and running renewable energy facilities. Northland is a mid-sized Canadian renewable energy company whose shares trade on the TSX with over 1,000 employees.

The company currently has an interest in or owns roughly 3 gigawatts of electrical capacity. When taking into account projects that are currently under development, this capacity is estimated to increase by another 14 gigawatts.

Northland’s renewable energy sources are highly concentrated across offshore wind and efficient natural gas.

From a geographic perspective, the company operates in North America, South America, Europe, and Asia.

Currently, Northland pays a relatively lower forward dividend yield when compared to other peers on our list. The company offers both common and preferred shares to investors, with common shares making regular dividend payments to investors since inception.

ESG investors may find Northland to be an attractive stock.

Within a utilities portfolio, Northland Power is a good stock to consider, especially given the long-term positive outlook for renewable energy on a global basis.

4. Hydro One Limited

Hydro One is a name in the utility space that you have likely encountered if you live in the province of Ontario. The company became publicly traded in 2015, in the largest privatization by the province of Ontario.

The company focuses exclusively on electrical transmission and local distribution of power and does not own any power-generating assets.

Hydro One is one of the largest electrical utilities in North America and is a leader within the province of Ontario. Within the province, the company is currently servicing approximately 1.5 million customers.

Hydro One aims for a 70-80% target payout ratio and currently offers investors a good forward dividend yield. The company has one of the strongest investment-grade financial positions within the utility sector.

The company has very stable operations with 99% of overall revenues being fully rate-regulated. Hydro One is also recognized as one of the Best 50 Corporate Citizens in Canada by Corporate Knights.

As a key Canadian utility company, Hydro One is an important stock to consider if you are looking to invest within the utility sector in Canada.

5. Canadian Utilities

As part of the ATCO Group, Canadian Utilities is another large player in the utilities space here in Canada. Canadian Utilities operates across three categories:

• Utilities – electricity and natural gas distribution, including international operations
• Energy Infrastructure – energy generation and storage as well as clean fuels
• Retail Energy – natural gas and electricity retail sales

The company has roughly 4,800 employees and assets worth approximately $21 billion.

Canadian Utilities operates in various countries across North America and South America, with various levels of operations in each.

Canadian Utilities has five strategic priorities:

1. Growth
2. Innovation
3. Financial strength
4. Operational excellence
5. Community involvement

Canadian Utilities has increased its stock dividend each year for 50 consecutive years. This is the longest track record of consecutive dividend increases of any publicly traded company in Canada.

Between 2001 and 2021, an investment in CU shares would have significantly outperformed the S&P/TSX Composite index on a total return basis.

CU is currently paying an excellent forward dividend yield and is an attractive stock for investors looking for stable dividend growth.

Canadian Utilities is another key stock to consider within the utilities sector here in Canada.

6. Capital Power Corp

Capital Power, headquartered in Edmonton, Alberta, is a wholesale power producer with a strong emphasis on sustainable energy. The company builds, owns, and operates renewable and thermal energy generation facilities.

The company has widespread operations across Canada and in the US:

Capital Power has a power generating capacity of 6.6 gigawatts across 27 facilities across North America. Projects under development will aim to increase capacity by roughly another 900 megawatts.

After repowering two remaining sites, Capital Power will be entirely off of coal sometime in 2023.

The company has grown its dividend for nine consecutive years and is estimating a dividend yield of approximately 6% per year until 2025.

Capital Power has roughly 85% of capacity under long-term contracts with high-quality counterparties. The expiration dates of these contracts fall between 2030 and 2035.

CPX currently pays a great forward dividend yield which will attract income-oriented investors. As a sizable supplier of energy across both Canada and the US, Capital Power may be a good stock to consider for a utilities portfolio.

7. Algonquin Power & Utilities

As a renewable energy utility company in Canada, Algonquin Power & Utilities is another fairly well-known name. The company has its headquarters in Oakville, Ontario.

As per the company’s 2021 annual report, Algonquin has 3,400 employees and operates:

• 1,217,680 solar panes
• 55 hydroelectric generators
• 1,541 wind turbines

The company operates 41 energy facilities and has an installed gross capacity of 2.3 gigawatts.

Historically, Algonquin Power & Utilities has experienced a high rate of growth and has outlined a strong capital expenditure plan in place for the next several years. This will allow the company to sustain and grow operations in the future.

Algonquin has a substantial number of projects currently in development. With the completion of these projects, its electrical capacity is projected to be roughly 4 gigawatts.

Since the company is a renewable energy utility company, its stock will also be attractive for investors that are ESG-focused.

8. Boralex Inc.

Boralex is a mid-sized Canadian renewable energy company with sizable operations both here in Canada as well as globally. Company facilities are currently operating in France, Canada, and the US. The company currently has projects under development in the UK.

Within France, Boralex is now the biggest independent producer of onshore wind power. Boralex’s energy capacity has approximately doubled over the last 5 years to roughly 2.5 gigawatts.

With current projects factored in, energy capacity is expected to increase by another 4 gigawatts.

As of mid-2022, 98% of Boralex’s capacity was secured by long-term, fixed-price energy contracts. The security of these contracts allows for more predictable and stable operating results.

Since Boralex shares introduced a dividend in 2014, the amount paid to investors has been increasing each consecutive year.

Relative to the other stocks on our list, Boralex trades at higher multiples and is more of a growth stock. Since the stock has these characteristics, it also pays a much lower dividend yield, making it unattractive to income-focused investors.

Boralex places a strong emphasis on ESG metrics as well as corporate social responsibility in its day-to-day operations.

Given the stock’s European presence and strong tailwinds from renewable energy demand, Boralex is a great stock to consider within a utilities-focused portfolio.

Should You Invest in Utility Stocks?

Since utility stocks have specific features that are common across the sector, they may appeal to certain investors.

Individuals that should consider utility stocks include:

• Those that are in need of a high dividend yield or income
• Investors with a relatively lower risk tolerance but that are still looking to invest in stocks
• Individuals who are not looking for extreme gains and instead value stability

Make sure that stocks are appropriate for your risk tolerance before deciding to buy a Canadian utility stock or any other equity.

How to Buy the Best Utility Stocks in Canada?

If you have done your research and have decided on which utility stocks to include in your portfolio, we recommend purchasing them through a discount broker (also known as a self-directed broker).

A discount broker is simply a trading platform that allows you to buy or sell stocks.

The cheapest way to buy stocks is from discount brokers. My top choices in Canada are:

To learn more, check out my full breakdown of the best trading platforms in Canada here.

Best Utilities ETFs in Canada

Individual stocks may not give you enough diversification within the utility sector. A Canadian utility sector ETF may be another option to consider.

Choices to consider in this space include:

• BMO Equal Weight Utilities Index ETF (ZUT.TO)
• iShares S&P/TSX Capped Utilities Index ETF (XUT.TO)

Do Utility Stocks Do Well During Inflation?

Utility stocks may be a great investment choice during periods of high inflation. This is especially true if the utility company you are considering can raise its prices in line with inflation, reducing the impact of higher prices on its business.

Do Utility Stocks Drop When Interest Rates Rise?

Utility stocks can come under pressure when interest rates rise. As more conservative stocks, utility stocks lose some of their demand as bonds become more attractive at higher interest rates.

Since utility companies are usually highly leveraged, their cost of borrowing increases when rates rise.

Conclusion

Utility stocks allow you to invest in Canadian utility companies which tend to be relatively stable and offer a good income stream through dividends.

Be mindful that utility stocks may not offer the same explosive growth as some of their peers, specifically in more growth-oriented sectors such as tech.

If you are looking for defensive stocks (not necessarily utility stocks), make sure to take a look at our list of the best defensive stocks in Canada.