3 top utility stocks on my radar this year

3 top utility stocks on my radar this year

If you aren’t planning to sell your stocks, any of your stocks, any time soon – you and I shouldn’t fear market calamity or pullbacks.

If anything, it should be time to celebrate.

Why?  Stocks are on sale!!

Historically, market volatility triggered by interest rate increases do not bode well for utility stocks. We saw this in action last year…

The first reason for this is because rate increases tend to make bonds look more attractive to conservative investors.  The second major reason is because higher interest rates are a hit to the borrowing costs of these huge businesses.  Major utility companies often service considerable debt to deliver their capital projects – infrastructure construction costs do not come cheap.

The good news is, at least for utility investors, these costs are often passed onto utility customers.  Over time, higher utility costs will deliver more revenue; more revenue can increase the company’s cash flow.  More cash flow is good for maintaining the company’s dividend and can provide additional opportunities for more dividend increases.

Dividend Slide

While more threatening, rising interest rates may put pressure on the utility sector short-term I see value and growth in this sector long-term.  On that note, here are some top utility stocks on my radar for the rest of this year.

Utility Stocks

Algonquin Power (AQN)

Algonquin Power & Utilities Corporation is a regulated utility company with assets across North America.  From their company website, the company acquires and operates green and clean energy assets including hydroelectric, wind, thermal, and solar power facilities, as well as sustainable utility distribution businesses (water, electricity and natural gas) through its two operating subsidiaries: Liberty Power and Liberty Utilities.

The way I see it, long-term, the demand for electricity and natural gas services is not going to slow down.  I am only happy to buy more of AQN in 2019 if the stock price stumbles.

In addition, owning AQN is a great way to get your U.S. dollar income from Canadian dividend paying stocks.

Fortis (FTS)

What’s not to love about a well-run company that has increased their dividend, annually, to buy-and-hold shareholders for almost a half a century?

I started buying FTS myself back in 2009 when I left the mutual fund industry.  At the time of this post we own hundreds of shares. 

From their company website:  Fortis has its roots to 1885.  In the generations that followed, the company eventually became Newfoundland Light & Power Co. Limited which became the first wholly owned subsidiary of Fortis Inc. Fortis was created as a holding company in 1987 with the mission to expand and diversify. Today, Fortis is a leader in the North American utility industry with assets of $50 billion and 2017 revenue of $8.3 billion. Our more than 8,500 employees serve utility customers in five Canadian provinces, nine U.S. states and three Caribbean countries.

Any decline in Fortis price with more interest rate increases planned for 2019 and I’m likely to buy more of this stock – as I continue to run many stock dividend reinvestment plans across my discount brokerage portfolio.

Capital Power (CPX)
Capital Power owns approximately 4,500 megawatts of power generation capacity at 24 facilities and is pursuing contracted generation capacity throughout North America.  It is a growth-oriented company that is focused on developing, acquiring, owning and operating power generation facilities using a variety of energy sources:  natural gas, wind, and solid fuel facilities.

At the time of this post, Capital Power offers an attractive 6% yield and has been increasing their dividends, steadily, since 2013.  The company is also striving to grow their dividend by 7% per year for the next 3 years.

Summary

At the end of the day, if you expect to be an investor for the next 5, 10 or even longer years – you should jump for joy when stock prices fall and/or when they stay depressed. 

This is because your favourite stocks, including your utility stocks, are on sale. 😉

Do you own any utility stocks in your portfolio? 

Do you own any of these stocks via low-cost Canadian ETFs like these top funds here? 

Let me know in a comment below what you think of this sector.  Mark

Mark Seed is the founder, editor and owner of My Own Advisor. As my own DIY financial advisor, I've grown our portfolio to over $600,000 now - but there's more work to do! Our next big goal is to own a $1 million investment portfolio for an early retirement. Subscribe and join the journey!

38 Responses to "3 top utility stocks on my radar this year"

    1. Happy to be DRIPping CPX, CU, BEP.UN, EMA, AQN, FTS and more every quarter.

      I’ve been a huge fan of cash-cow utilities where folks take electricity and more for granted.

      All the best Rob!
      Mark

      Reply
  1. I like these stocks and the dividends they pay. As I add to my portfolio this year I will keep these under strong consideration. Thanks Mark!

    Reply
  2. Hi Mark
    I own all of these stocks and they provide good dividends for my portfolio. Not purchased for growth though, as they are steady but not shiny performs in the valuation department. However they have never taken a hard hit when the market does take a dive. As to owning any of these stocks in an ETF. No. They are simple to purchase and even at a low MER I think you get more value for the buck by buying them directly. I tend to unbundled Canadian stocks because there are few of them. When it comes to US stocks, Emerging markets or European stocks I love ETFs because there was no way as a DIY investor that I could keep up with the research.

    Reply
    1. Pretty much my approach for many years now – own CDN stocks directly (I think I have 32 now) and own a few U.S. stocks for income. Beyond that, own more and more units of low-cost U.S. ETFs every year to increase my diversification – for growth sprinkled with some income. Stay the course! 🙂

      Reply
  3. Hi Mark
    I love my utilities…….I own AQN and EMA and will continue to add these stocks to my portfolio and hold them for for years to come.I have bought AQN for my wife’s portfolio as well.This is a solid way to generate additional income for the the retirement years. For the record Mark,I love your philosophy and enjoy reading your posts .Keep up the good work !

    Reply
  4. Hi Mark,

    Thanks for confirming my bias utilities are the 2nd largest sector in my portfolio.

    Own AQN, FTS, EMA and BEP evenly split between my RRSP and TFSA accounts, all are dripping and all are kinda pricey right now waiting for a dip before buying more FTS ($45 or lower would be ideal). No interest in CPX at this moment not a bad company but they are smallish and still have too much coal related risk for my liking besides I do not need more Alberta exposure/risk (ATCO/CU is also a no-go). If I could only buy one it would be FTS hands down.

    Reply
    1. I’m a huge fan of owning what people consume everyday Ben-R. You’re right about CPX and their coal – I’m personally/environmentally not a huge fan of that but I could foresee that changing over time.

      From a Globe article:
      “Clearly, Capital Power (TSX: CPX) needs to change, and it’s doing just that. Under Vaasjo, the company has moved beyond its coal-fired Alberta base, snapping up natural gas facilities in Ontario and waste-heat assets in British Columbia. It has also expanded into the United States, acquiring natural gas power plants and building its first wind farm, in Kansas. Today, Alberta accounts for 53% of Capital Power’s 4,500 megawatts of owned capacity, down from 74% in 2016. American capacity has grown to a 26% share from 6%.

      As for the company’s four coal-fired plants in Alberta, it is converting them all to natural gas with $52 million a year in financial aid from the provincial government for 14 years.”

      I can see upside in this company but there are always risks with individual stock selection!

      Cheers,
      Mark

      Reply
  5. I’ve just about got all the balancing done so I’ll not be adding any more to the positions I already have. Like many, AQN, FTS, BEP.UN and ENB are all prominent with a smaller holding of ALA. I’m *mostly* happy where I am with these. ALA is of course the stinker but like a crazy old uncle in the family I’ll hold on to it. At least the DRIPs will be averaging down the cost.

    Reply
    1. ALA will come back…should….at some point. I don’t own any myself. Big fan of core utilities like these ones and EMA, BEP.UN, a few others. No reason to change my portfolio at this time.

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      1. Yes. Their earnings apparently met expectations, reasonable growth y over y, but the stock is down and barely over what is was a year ago. Markets sometimes are strange. Good news is dividend is up 8.5% in that time.

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        1. For fun:other big 4 banks earnings & my dividend calls:

          Feb: 26 BNS .85>.87
          28 CM 1.36>1.39
          28 TD .67>.74
          26 BMO No

          Re my comment above. I guess all the shorts will have more to cover now with RY raising and likely others I mention.

          Reply
          1. I’ll go out on a limb and go with BNS to .88 and TD to .75. Concur on the others and add no change for NA on the 27th and no change for AQN on the 28th.

            Having said that, I blew the call on BPY.UN so I should probably stick to NOT trying to figure stuff out and just admit I don’t know what the hell is happening.

          2. Agreed – I don’t know what the hell is happening either!!

            I’ll go the following:

            -BNS increase by $0.02.
            -TD increase by $0.03.
            -BMO increase by $0.03.
            -CM increase by $0.03.

            NA and LB – who knows 🙂

          3. Definitely possible. Hope you’re right!

            Your call on BPY.un still might happen.

            Trust me, I’ve made many bad calls. Mostly big missed opportunities trying to buy too low. I owned a small position in ALA too but took the hit some time ago before the big cut. Lost faith in their management.

          4. BNS had 3 cents raise for three times now. If they raise only 2 cents this time, I think the stock price will go down quite a bit. So hopefully it will be a 3 cents raise.

            BNS is the falling knife I have caught. Biggest financial position in my portfolio. Just cross my fingers that it will turn back.

          5. “Your call on BPY.un still might happen.”

            lol…a broken clock is correct twice a day. I blew it. Thankfully, all it really cost me is opportunity. I did manage to use this screw up to re-balance a bit so all was not lost.

          6. May, you’re right. I looked this stuff up carefully before I wrote, but put down the wrong number. I meant 3 cents but too late now! BNS is my second largest CDN position. We’ll be all right.

            Lloyd, well then let’s hope you’re really wrong and this thing really gets moving. It’s been in the doghouse for too long. You’ve still got a position WAY bigger than mine to get rewarded on.
            Cheers

    1. I’ve got some. Every month it DRIPs. I don’t do extensive research on stocks so take that for what it’s worth (not much). I recently read an article about it but for the life of me I can’t remember where or the substance behind the article.

      Reply
    2. I own a fair bit. “Seems” like a good value now, but it has vulnerabilities in oil/gas sector, and in the venturing into the new polyproplene business, that Pembina is also doing. If it works that could be an opportunity but there could be plenty of capital issues and learning curve.

      FFO growing, dividends growing and look sustainable. Suggest reading their investor presentation to start with.

      Reply
    3. High dividend, which makes me nervous but John Heinzl had a good article. Sorry, subscribers only…but…
      https://www.theglobeandmail.com/investing/investment-ideas/article-an-8-per-cent-yield-thats-actually-safe-yup/

      “For investors who can exercise patience, however, Inter Pipeline’s slumping share price offers an attractive entry point, some analysts say. The yield may look excessively high, but the dividend is “extremely low risk” and investors who “pocket the dividend and wait” will be ultimately be rewarded with a higher share price, analyst Elias Foscolos of Industrial Alliance Securities said in an interview.”

      “Adding to the dividend’s safety, Inter Pipeline supports the payout with contractual cost-of-service and fee-based cash flows, which are insulated from swings in commodity prices and account for roughly two-thirds of the company’s earnings.”

      “We expect the contractual support will enable IPL to continue to grow its dividend at a conservative 2 per cent a year going forward,” AltaCorp Capital analyst Nate Heywood said in a recent note, in which he initiated coverage of the stock with an “outperform” rating and price target of $27.50.”

      I own a few hundred shares but I can say that about a few dozen other CDN companies. I wouldn’t put more than 5% of your portfolio in any one stock but pipelines are like toll roads in Canada and for the most part, unless management is totally off their rocker – the dividend should be fairly safe.

      Mark

      Reply
      1. Seems consistent with what I’ve read recently. They may keep the dividend raises going very conservatively just to keep the streak alive which I think is 10 years now. I’m not nervous. My free Globe subscription from our library has expired and they won’t offer it to me anymore. I’d get it myself but very expensive. May go back to NP/FP.

        My largest individual stock holding is just under 2.5% overall -ENB.

        Reply
        1. Ya. I’d have to run some numbers myself but I think BMO or ENB might be my largest holding beyond VYM at around 5-6% each.

          EMA and FTS are around 4.5-5% of portfolio.

          VYM is our largest holding in our portfolio, closing in at about 8%. I would like it to become about 10-15% eventually in 5-10 years – that should happen if we’re DRIPping 5 shares per quarter and likely to add to it every year as well.

          I have a G&M subscription but I offset that expense via blog as one of my small business expenses.

          Reply
          1. All my CDN stocks range 1-2.5% probably avg ~1.5% of overall portfolio. 24 stocks I believe. EMA 1.8%, FTS 1.5%

            VYM also my largest holding and of 4 ETFs. About 11%+ overall portfolio, and ~18% of equity. If I consolidate US just to VYM that would bring it to 18% and 30% respectively. I may let it run a little beyond that.

            I knew you would be doing that with the Globe.

  6. That’s were I read it. One good thing about slow internet one can sometimes get past a subscription issue. We’re north of 1500 shares on this but with 2 moderate DB pensions and a very large GIC segment we have a bit more risk latitude than many.

    Reply

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