3 utility stocks I plan to buy more of in 2018
When the Bank of Canada finally declared a mini-war on interest rates in 2017 (meaning, they finally went up), some investors got spooked and the rhetoric about what stocks to avoid began.
Historically, financial gurus tell investors to be selective with utilities and Real Estate Investment Trusts (REITs) in a rising interest rate climate. You can see examples of that here.
Why worry about utilities and REITs as investments you might ask? Because we’re told they carry more debt than other companies (in other sectors) which becomes more expensive to service as borrowing costs increase.
Forget that – if you’re a long-term investor like me. In 2018, I’m going to be a contrarian and buy more of what I own. I intend to buy more Canadian utility stocks to balance out my portfolio.
What stocks am I going to buy? Here are three utilities on my watch list for 2018.
I currently run a DRIP for this stock in my discount brokerage account (reinvesting two (2) shares earned via dividends every quarter) but I’m looking for more. If interest rates inch up another 25 basis points in 2018 like I expect they might, Fortis stock price might drop as more investors get spooked. That will provide a nice buying opportunity for me.
Fortis is one of the largest utilities on our continent. Like most major utilities, Fortis generates most of its revenue via regulated contracts to the residents and businesses it serves. Regulated contracts are good for long-term revenues.
Fortis has grown their assets from a few hundred million about thirty years ago into about $47 billion today. They continue to grow their assets and customer base through acquisitions. They also have a tidy dividend growth history underway.
Image courtesy of Fortis website.
Algonquin Power (AQN)
I also run a DRIP for this stock inside my Registered Retirement Savings Plan (RRSP). (Note: for my readers in the United States reading this post, my RRSP is an account similar to your 401(k) – a tax-deferred retirement savings account.)
I’m a big fan of Algonquin Power. Based out of Oakville, Ontario, Canada, this company is a diversified power generation, transmission and distribution utility with over $10 billion in assets across Canada and in the U.S. I’m a fan because this company is focused on renewable energy sources, including wind, solar and hydroelectric power. As our population demands cleaner and more sustainable energy, Algonquin Power will be there to provide it. Last time I checked, the demand for energy (including cleaner energy) is not going anywhere.
As a shareholder, I’ve enjoyed the recent annual dividend growth rate of 10%. I predict there is more to come. I wouldn’t be surprised if there is a 5-10% dividend increase coming early in the new year. Let’s hope.
Brookfield Infrastructure Partners (BIP.UN)
Quite the international foothold in just one stock! Brookfield Infrastructure Partners operates in a multitude of sectors: utilities, transportation, energy, communications and sustainable resources. Here are some selected details:
- They own and manage over 2,000 km of natural gas pipelines; utility operations exist in the U.S., U.K., Chile, Columbia, Brazil and Australia.
- They own and manage 36 ports around the world, as well as 3,600 km of toll roads in South American and India.
- They own and manage 7,000 multi-purpose communications towers.
- They own more than 3.7 million acres of timberland.
Image courtesy of Brookfield Infrastructure Partners website.
What does that all mean for a shareholder like me? Present diversification and long-term growth opportunities based on that diversification. Don’t just take my word for it. From BIP.UN’s website:
“The company’s objective is to generate a long-term return of 12 -15% on equity and provide sustainable distributions for unitholders while targeting annual distribution growth of 5-9%.
Brookfield Infrastructure Partners L.P.’s strategy is to acquire high quality businesses on a value basis, actively manage operations and opportunistically sell assets to reinvest capital into the business. The company has established a solid performance record, delivering compounded annual total returns of 15% since its inception in 2008.”
I will consider adding more shares for other stocks in my portfolio in 2018 however these utility companies float to the top of that sector list. These companies are increasing their cash flow over time and they are passing along some of their profits back to shareholders via dividend increases. I intend to remain one of them for all three of these stocks.
What utility or other stocks do you have your eye on in 2018?