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3 Utility Stocks You Should Buy on a Dip

Amy Legate-Wolfe
Electricity high voltage pole and sky
Electricity high voltage pole and sky

The utility industry is an interesting one. While it isn’t a material, it still has the potential to combat many an economic downturn. It’s one of those few industries that buying on a dip could reap some real rewards in the long term. That because no matter what, people will need gas, electricity, water — the staples of life, frankly.

That’s why today I’ll be talking about Algonquin Power & Utilities (TSX:AQN)(NYSE:AQN), Fortis (TSX:FTS)(NYSE:FTS), and Canadian Utilities (TSX:CU) as some great options to buy. Just … not yet.

Algonquin

This utility company operates across Canada and the United States, generating, distributing, and transmitting utility assets and electrical energy through renewable and clean energy facilities.

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Given its vast distribution, it should come as no surprise that this company rakes in cash quarter after quarter. Most recently, it reported earnings of $555.01 million and $0.19 earnings per share, beating analyst estimates.

The only downside is that right now this stock is overvalued at its all-time high of $15 and should drop during the next 12 months. But once it does, you should absolutely buy it up and take the benefits of its 4.58% dividend yield while you wait for another rise.

Fortis

This gas and utility company also operates in Canada and the United States, but stretches beyond to the Caribbean. After a few acquisitions, this company is mainly a U.S. utility with about 65% of its earnings coming from the U.S. The company is now focusing on internal growth rather than acquisitions, which analysts believe could see the company grow by 6% through 2023.

Just like Algonquin, this company continues to collect cash. Its last earnings came in at $2.21 billion, with earnings per share at $0.56. Its diverse, low-risk operations provide the company with not only this continuing streamline of cash, but also consistent dividend growth, which it’s had for the last four decades. In fact, it’s raised its dividend faster than most of its peers, with it sitting at 3.64% at the time of writing.

There are also more opportunities Fortis could get into, such as renewable energy and grid modernization. When that hopefully happens, shareholders will be thankful they bought this stock. It’s also near its all-time high, but analyst believe it could rise to $55 per share in the next 12 months, so you might want to wait a bit, but I wouldn’t wait too long on this one.

Canadian Utilities

Canadian Utilities focuses more on electricity, pipelines and liquids, and the retail sector of the energy business. Its business is international, stretching from Canada to Australia and Mexico, and it now is under the banner of ATCO after being acquired recently.

This has proven positive for this company, with its last quarter earnings at $1.04 billion at earnings per share of $0.69. That should increase even further, as the company has invested $315 million in capital growth projects for the first quarter of 2019. Until 2021, it plans to invest a further $3.5 billion to Canada and Australia to strengthen high-quality earnings.

And, again, there’s that attractive dividend of 4.63% at the time of writing, with the company having a record of raising it every year since 1972, which is the longest streak among most Canadian publicly traded companies.

Like Algonquin, this stock is slightly overvalued at $37.18 per share and should remain around there for the next year. However, when the next dip happens, I would buy up this stock and take advantage of that dividend, then watch it steadily creep up for the long term.

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Fool contributor Amy Legate-Wolfe has no position in any of the stocks mentioned.

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