Top 5 Utility Stocks to Buy in Canada [2024]

Summary: Investing in utility stocks can be a smart decision, as there are a lot of companies in the industry characterized by stable financial performance and consistent dividend payouts. In Canada, there is a diverse range of utility stocks to choose from, allowing investors to strategically invest in the sector and diversify their portfolios. In this guide, we are taking a look at the top 5 utility stocks to buy in Canada through an online broker such as Interactive Brokers.

Utility stocks

With both large multinational corporations and smaller regional companies, the Canadian utility stock landscape is rich with potential growth opportunities.  Thus, as an investor, you must understand the unique characteristics of each branch of the utility sector and how it can impact your investment decisions. 

When investing in the utility sector, you are investing in companies engaged in the production and distribution of essential services such as those mentioned above. Since they’re essential to the country’s infrastructure and economy, these companies are typically regulated by the government and have a secure revenue stream, largely due to their stable and predictable demand. Consequently, investors can expect stable income to result in steady dividend payments, which makes utility stocks a good choice for long-term investors.

Why invest in utility stocks

Utility stocks are often considered defensive investments. That is, they provide slower but generally consistent and stable returns. In other words, since utility companies provide necessary services, it is very likely that they can keep performing well even in poor market conditions. This kind of lower volatility is, of course, very attractive to passive investors.

Utility stocks are solid investment choices for a number of other reasons, too:

• Many utility companies are also known for their attractive dividend yields. Naturally, since utility companies generally have steadier revenues, they can afford to distribute a larger portion of their earnings to shareholders, which can provide you with a regular income stream;
• Moreover, the utility sector has been undergoing significant transformations in recent decades, with a growing focus on renewable energy and greener energy solutions. Thus, investing in utility stocks is a terrific way to engage in environmental, social, and governance or ESG investing and align your investment strategies with your environmentally-conscious values;
• Additionally, since many jurisdictions set the rates at which utility companies can charge their customers, there is always a possibility of a more reasonable return on investment. That is, governmental regulations can help protect your investment by promoting stable earnings for the utility industry. 

Some considerations

Despite all the benefits of utility stocks, it is crucial to recognize that the utility sector is not guaranteed to remain stable forever. After all, large players in any economy can be sensitive to adverse changes in the broader geopolitical environment. 

Things such as interest rate fluctuations, sudden regulatory changes, and even technological advancements in renewable energy sources can prove double-edged swords and significantly impact specific utility companies if they fail to adjust to technological demands and shifts in the market sentiment (or if they simply become obsolete in the light of new, innovative solutions). 

Companies in this industry also require substantial investments in infrastructure and equipment to provide their services. This capital expenditure can have a negative effect on profitability and cash flows, so it is essential to carefully evaluate the financial health of each company (as well as your risk profile) before making an investment decision.

Top 5 utility stocks to buy in Canada

There are a lot of utility companies listed on the Toronto Stock Exchange (TSX). Some of the more profitable ones include:

Company	Ticker	Market capitalization (Q4 2023)
Enbridge	(TSX: ENB)	$76.64 billion
Fortis Inc.	(TSX: FTS)	$26.36 billion
Hydro One	(TSX: H)	$23.41 billion
Emera Inc.	(TSX: EMA)	$13.75 billion
Algonquin Power & Utilities Corp.	(TSX: AQN)	$5.87 billion

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Enbridge

Enbridge (TSX: ENB) moves approximately 30% of the crude oil produced in North America and nearly 20% of all natural gas consumed in the United States. Moreover, the company operates North America’s third-largest natural gas utility (by consumer count) and has around 12,000 employees in the U.S. and Canada alone.

Although the company focuses mostly on the oil and natural gas business, it is increasingly expanding its focus on greener energy sources. For example, Enbridge recently allocated over $8 billion to building several renewable energy and power transmission projects in North America and Europe, which put the company much higher on the list of global utility selector players. 

Enbridge stock price 

Fortis Inc.

Fortis Inc. (TSX: FTS) is a long-standing Canadian utility company based in Newfoundland. It operates in the US, the Caribbean, and Canada, serving more than 3.4 million customers across ten different regulated utility businesses and generating a profit of $8.74 billion as of Q4 2023. 

Moreover, Fortis operates in 18 jurisdictions, which makes it one of the most geographically diverse utility businesses not only in Canada but on the entire continent. In addition, it aims for a 6.0% yield growth until 2025.

Fortis Inc. stock price

Hydro One Limited

Hydro One (TSX: H) is another noteworthy company in the Canadian utility sector. It specializes in electricity transmission and distribution and has a vast network infrastructure and a reliable service record.

Hydro One is the largest electricity transmission and distribution company in Ontario, distributing electricity to nearly 1.5 million residents (mostly those in rural areas), which is a total of around one-quarter of the total consumer base in the province. 

Hydro One stock price 

Emera Inc.

Emera Inc. (TSX: EMA) is another major player in the Canadian utility market, known for its high 5.31% dividend yields and subsidiaries that produce and convey electricity to customers across Canada, the United States, and the Caribbean. 

Electricity is not Emera’s sole focus. The company operates with a range of natural resources coal, natural gas, oil, hydroelectric, wind, solar, and biomass. Moreover, it can be treated as an energy sector company, as it engages in the procurement, distribution, and trading of natural gas and liquefied natural gas. This makes Emera a solid choice for investors looking to gain exposure to a wide range of sectors.

Emera Inc. stock price 

Algonquin Power & Utilities Corp.

Algonquin Power & Utilities Corp. (TSX: AQN) is a diversified utility company operating in both the renewable energy and utility sectors. With its 4,000 employees, 12-month revenue of around $2.8 billion as of Q3 2023, and a diverse portfolio of hydroelectric, wind, and solar power products, the company inspired confidence in its ability to maintain its growing trajectory. Moreover, Algonquin Power & Utilities Corp. has a dividend yield of 5.52%.

Algonquin Power & Utilities stock price

Key factors to consider when investing in utility stocks

When investing in utility stocks, there are several factors you should consider when evaluating potential investments:

• The dividend yield is important for income-focused investors who seek consistent cash flows from their investments. If you fit that profile, look for companies with higher dividend yields, such as Algonquin Power & Utilities Corp.;
• The company’s financial health — i.e., things like debt levels, cash flow, and payout ratios — is most important for its stock performance. A healthy balance sheet and low debt levels can help a company push through economic downturns and continue to reward shareholders with decent dividends. For example, Canadian Utilities (TSX: CU) has a dividend payout ratio of 85.41%;
• Diversification is also important. That is, utility companies with diversified revenue streams do better in challenging economic conditions as their income does not depend on a single source. A diversified company like Emera Inc. (TSX: EMA), for example, is in a much better position to weather an economic storm;
• Regulatory changes can significantly impact the future growth and profits of any company in the sector. Therefore, take into account any potential changes in regulations, as well as the company’s ability to adapt to them;
• Lastly, consider the growth potential of the utility stock. While utility stocks are known for their low volatility and stability, companies that invest in renewable energy solutions may have a headstart in the long run.

Utility funds — an alternative option

Utility exchange-traded funds (ETFs) are funds that focus on tracking companies in the utility sector. By investing in these funds, you can diversify your investment portfolio without having to place multiple trades and follow each company stock individually. 

Some of the better-performing utility sector ETFs to check out in 2024 include:

• The BMO Equal Weight Utilities Index ETF (ZUT): One of the major Canadian ETFs with a terrific track record and solid yields. However, it’s a bit expensive;
• iShares S&P/TSX Capped Utilities Index ETF (XUT): One of the major investment options when it comes to Canadian utility companies, being closely tied to the  S&P/TSX Capped Utilities Index;
• Utilities Select Sector SPDR Fund (XLU): A fund primarily investing in utility companies contained within the S&P 500 index.

Conclusion

In summary, investing in utility stocks can provide stability and consistent dividends to your portfolio. By adding some of the stocks mentioned above to your investment portfolio, you can benefit from consistent dividends and slow but steady growth opportunities. However, since investing is inherently risky, remember to conduct thorough research and consider your personal financial goals before making any investment decisions. 

FAQs about the top 5 utility stocks to buy in Canada

What are utility stocks?

Utility stocks are shares in companies that provide basic everyday amenities, including gas, oil, electricity, etc.

What are the top 5 utility stocks to buy in Canada in 2023?

The top 5 utility stocks to buy in Canada in 2023 are Fortis (TSX: FTS), Emera (TSX: EMA), Enbridge (TSX: ENB), Algonquin Power & Utilities Corp. (TSX: AQN), and Hydro One (TSX: H). 

Where to buy utility stocks in Canada?

Canadian investors can buy utility stocks through online platforms such as Interactive Brokers. 

Is investing in utility stocks in Canada risky?

All investments carry risks, and profits are never guaranteed, no matter what sector you are investing in.