Top utility stocks are a solid option for investors looking for stability, income, and growth in the long run. These companies operate a defensive business model and have rate-regulated assets that enable them to generate predictable cash flows in all market conditions, supporting their payouts and growth.
Their growing earnings base, solid fundamentals, and reliable payouts make them top dividend stocks to generate stress-free income.
So, if you’ve got $2,500, here are three utility stocks to buy now and hold forever.
Utility stock #1
Hydro One (TSX:H) is one of the top Canadian utility stocks for investors seeking stability, income, and growth. Engaged in electric power transmission and local distribution, Hydro One has no exposure to power generation and is not affected by commodity price volatility. This adds stability to its business and generates steady earnings and reliable returns.
Further, Hydro One benefits from its strong balance sheet and solid cash flow. Its financial stability enables it to invest in refurbishing aging infrastructure, supporting its growth.
Hydro One has steadily increased its dividend since 2016, driven by its low-risk earnings, expanding rate base, and strong cash flows. Moreover, its stock has surged over 98% in five years, delivering an average annualized return of about 14.6%.
Looking ahead, Hydro One projects its rate base to grow at a compound annual growth rate (CAGR) of 6% through 2027, which implies that its earnings will continue to increase. This will drive its future payouts and share price.
Utility stock #2
Emera (TSX:EMA) is another high-quality utility stock to buy and hold. Canada’s leading electric utility company has defensive assets and benefits from regulated cash flows and a growing earnings base, which enables it to pay higher dividends. Moreover, it offers a healthy yield of approximately 5.4%.
The utility company derives 96% of its adjusted net income from regulated utilities. This adds stability to its cash flows, making it a dependable income stock. Notably, Emera has raised its dividend for 18 consecutive years. Further, the company will likely continue distributing higher dividends led by its growing rate base, which will drive its earnings and payouts.
Emera forecasts its rate base to increase by 7-8% through 2029. The expansion of the rate base will lead to 5-7% growth in its earnings per year. Moreover, Emera aims to expand its dividend by 1-2% in the coming years.
Emera’s bottom line is projected to increase faster than its dividend. This indicates that its payouts are well-covered and sustainable in the long term.
Utility stock #3
Fortis (TSX:FTS) is a top utility stock to add to your portfolio. The company’s stellar dividend-growth history, resilient cash flows, and growing rate base make it a must-have stock to start a growing passive-income stream. Fortis operates a low-risk and regulated business that generates predictable earnings and steady cash flows, which support its regular payouts and drive growth.
Fortis has increased its dividend for 51 consecutive years. Further, it offers a yield of 4.1%.
Fortis plans to expand its rate base at a CAGR of 6.5% over the next five years. This implies that the company will likely deliver higher earnings, driving higher payouts. The company’s management also projects its future dividends to grow at a 4-6% CAGR through 2029. Further, its solid transmission investment pipeline and energy transition opportunities bode well for future growth and will support its distributions.