For many investors, utilities stocks represent a cornerstone for building a resilient portfolio, particularly in uncertain economic climates.
What are utilities stocks?
Utilities stocks are shares of companies that provide essential services such as electricity, water and natural gas. These companies operate in regulated industries, offering products and services that are vital to everyday life. Because of their stable demand, utilities stocks are often considered defensive investments, providing steady income through dividends and exhibiting lower volatility compared with other sectors.
Investing in Canadian utilities stocks involves purchasing shares in companies that provide essential services such as electricity, natural gas and water. These companies typically have stable, long-term revenue streams because of the consistent demand for their services, making them attractive for investors seeking steady income through dividends.
How to invest in Canadian utilities stocks
- Research and selection: Start by researching the major utilities companies in Canada and look at their financial health, dividend yield and growth potential.
- Assess risks: Consider the risks associated with utilities stocks, such as regulatory changes, interest rate fluctuations and the impact of environmental policies. Utilities stocks tend to be less volatile, but they are still subject to market risks.
- Open a brokerage account: To buy utilities stocks, you’ll need to open a brokerage account with a Canadian brokerage firm. Popular options include Questrade and Wealthsimple.
- Diversify your portfolio: While utilities stocks can provide stability, it’s important to diversify your investments across different sectors to manage risk.
- Long-term perspective: Utilities stocks are often considered long-term investments because of their consistent dividends and potential for modest capital appreciation. Consider reinvesting dividends to maximize returns over time.
- Monitor and review: Regularly review your utilities stock holdings and stay informed about industry developments, including changes in regulation, energy prices and technological advancements.
See also: Canadian investors’ guide to the stock market: overview for beginners.
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Five key Canadian utilities companies, by market cap
5. Algonquin Power & Utilities
Algonquin Power & Utilities Corp. is an Oakville, Ontario-based renewable energy and regulated utilities conglomerate. The company provides sustainable energy and water solutions through its portfolio of electric generation, transmission and distribution utilities investments to more than 1 million customer connections, mostly in the United States and Canada.
Algonquin has a market cap of C$5.45 billion, with a strong portfolio of wind, solar and hydroelectric assets, making it a key player in the transition to sustainable energy.
Algonquin Power & Utilities Corp. (TSX:AQN) last traded at C$7.10 per share.
4. Northland Power
Northland Power is a global power producer focused on helping the clean energy transition by producing electricity from clean renewable resources.
Northland Power owns and manages a diversified generation mix, including onshore renewables, natural gas energy, as well as supplying energy through a regulated utility.
The Toronto-based company has a growing presence in Europe, Asia and the Americas, with a market cap of C$5.56 billion.
Northland Power Inc. (TSX:NPI) last traded at C$21.59 per share.
3. Canadian Utilities
Canadian Utilities Ltd. is a subsidiary of the ATCO Group and one of Canada’s largest and most diversified utilities companies. The global energy infrastructure company operates through four segments: ATCO Energy Systems, ATCO EnPower, ATCO Australia and corporate.
The company provides electricity, natural gas and related services to millions of customers across Canada and internationally, with a market cap of C$8.93 billion.
Canadian Utilities Ltd. (TSX:CU) last traded at C$32.89 per share.
2. Emera
Emera primarily invests in regulated electricity generation and electricity and gas transmission and distribution with a strategic focus on transformation from high carbon to low carbon energy sources.
The geographically diverse energy and services company has its headquarters in Halifax, Nova Scotia. Its Florida Electric Utilities segment consists of Tampa Electric, a vertically integrated regulated electric utilities company in west central Florida. The Canadian Electric Utilities segment includes Nova Scotia Power, Inc., a vertically integrated regulated electric utility and the primary electricity supplier.
The company invests in electricity generation, transmission and distribution, as well as natural gas distribution. Emera has a market cap of C$14.53 billion with significant presence in Canada, the United States and the Caribbean.
Emera Inc. (TSX:EMA) last traded at C$50.39 per share.
1. Fortis
Fortis is one of North America’s largest utilities companies, whose primary business includes electricity and natural gas distribution.
The company is also investing heavily in modernizing its infrastructure and expanding its renewable energy portfolio, with a market cap of C$29.41 billion.
Its approximately 9,600 employees serve more than 3.5 million customers across five Canadian provinces, 10 U.S. states and three Caribbean countries.
Fortis Inc. (TSX:FTS) last traded at C$59.40 per share.
Honourable mentions
Brookfield Partners
Brookfield Renewable is the flagship renewable power company of Brookfield Asset Management.
One of the world’s largest publicly traded, pure-play renewable power platforms, Brookfield Renewable is a Canadian corporation with a portfolio of hydroelectric, wind, utilities-scale solar and storage facilities in North America, South America, Europe and Asia.
Brookfield Renewable Corp. (TSX:BEPC) last traded at C$37.29 per share.
Also under the firm’s umbrella, Brookfield Infrastructure Partners holds infrastructure virtually all over the world. These include gas pipelines, railways and electric smart meters.
Brookfield Infrastructure Partners (TSX:BIP.UN) last traded at C$43.74 per share.
The future of Canadian utilities
The Canadian utilities sector is looking at a significant transformation over the coming years, driven by the global shift towards cleaner and more sustainable energy sources.
As governments and corporations commit to reducing carbon emissions, utilities companies are increasingly investing in renewable energy projects and modernizing their infrastructure. This trend is expected to create new growth opportunities for companies in this space.
The Canadian utilities sector is likely to benefit from stable and predictable cash flows, supported by regulated business models and long-term contracts. This stability makes utilities stocks an attractive option for investors seeking reliable income and long-term capital appreciation.
Risks associated with investing in Canadian utilities stocks
While Canadian utilities stocks offer several advantages, they are not without risks:
- Regulatory risks: Utilities companies operate in highly regulated environments. Changes in government policies, regulations or tariff structures can impact profitability and growth prospects.
- Interest rate risks: Utilities stocks are sensitive to changes in interest rates. Rising interest rates can lead to higher borrowing costs and reduce the attractiveness of utilities stocks compared with other income-generating investments.
- Market risks: Utilities companies with significant exposure to international markets may face currency fluctuations, geopolitical risks and changes in foreign regulations that could affect their operations and profitability.
- Environmental risks: As utilities companies shift towards renewable energy, they might face operational and technological challenges, as well as competition from new entrants in the clean energy sector.
All things considered
Investing in Canadian utilities stocks offers a unique combination of stability, income and growth potential, making them a valuable addition to any diversified portfolio.
Companies like Algonquin Power, Northland Power, Canadian Utilities, Emera and Fortis represent some of the best opportunities in this sector, each with its own strengths and focus.
However, be aware of the risks involved, particularly related to regulation, interest rates and market dynamics. By conducting thorough due diligence and staying informed about industry trends, you can maximize your returns and build a resilient investment portfolio in the utilities sector.
What are your thoughts on the role utilities stocks can play in a portfolio? What companies would you like to see covered?
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(Top image: Algonquin Power & Utilities Corp.)