Written by Demetris Afxentiou at The Motley Fool Canada
Utility stocks are some of the best long-term picks on the market. And in a year full of volatility and uncertainty, the defensive appeal utilities offer makes them great for any portfolio. That volatility also means that we have some utility stocks that are too cheap to ignore right now.
Here are three options to consider.
Buying this utility today will set up tomorrow’s income stream
It would be impossible to assemble a list of utility stocks that are too cheap to ignore and not mention Fortis (TSX:FTS). Fortis is one of the largest utilities in North America, with 10 distinct operating regions across Canada, the U.S., and the Caribbean.
In total, Fortis boasts nearly 3.4 million utility customers across its sprawling network. That provides a certain defensive appeal over and above the regulated nature of the utility business.
Speaking of defensive appeal, prospective investors should note two unique features of Fortis. First, the company is investing heavily in upgrading and transitioning its facilities over to renewables. Fortis has allocated nearly $6 billion of its $22.9 billion capital fund towards cleaner energy.
The second point is Fortis’ dividend.
Fortis offers a quarterly payout with a yield of 4.14%. The utility has also provided annual upticks to that payout for an impressive 49 consecutive years, making it a must-have option for any well-diversified portfolio.
Invest in a (dividend) King
We’ve already established that utilities are superb defensive investments and a great way to offset market volatility. Utilities are also well-known for providing stable and recurring income streams that stem from a reliable business model.
With that income potential in mind, let’s take a moment to talk about Canadian Utilities (TSX:CU). Canadian Utilities boasts utility operations in Canada, Australia, and the Caribbean. The company also operates energy infrastructure across parts of Latin America, Canada, and Australia.
The overwhelming majority of those operations are regulated, and therefore provide a recurring revenue stream for the company.
Canadian Utilities is currently the only Canadian Dividend King. This means that Canadian Utilities has provided an annual bump to its dividend for 50 consecutive years. That fact alone makes the stock a stellar pick for any portfolio, but there are two more points to note.
First, Canadian Utilities is investing in growth initiatives rather than sitting on its laurels. Over the next two years alone, Canadian Utilities has earmarked $3.5 billion in capital growth projects.
And finally, here’s the reason Canadian Utilities is one of the utility stocks that are too cheap to ignore. Despite its defensive appeal, the stock is trading near flat year to date.
Renewable energy is too important to ignore
When we speak of utilities, investors often think of traditional fossil-fuel utilities. That stereotype omits a growing segment of renewable energy stocks like TransAlta Renewables (TSX:RNW).
TransAlta Renewables represents the best of both worlds. On the one hand, TransAlta operates a renewable portfolio of 50 facilities located across Canada, the U.S., and Australia. Those facilities include solar, wind, hydro, and gas sites, with a generating capacity of over 2,100 MW.
In other words, TransAlta operates a well-diversified business with massive defensive appeal. But there’s another important factor to consider.
TransAlta adheres to the same lucrative business model that traditional utilities follow. This means that investors can expect the company to generate a stable and recurring revenue stream. But more importantly, TransAlta isn’t straddled with the massive costs of transitioning to renewables.
Instead, TransAlta can focus on growth and paying out its generous dividend. That dividend is distributed on a monthly cadence and currently works out to a juicy 6.61% yield.
Finally, like most stocks on the market this year, TransAlta is trading down this year. As of the time of writing, the stock is down 24% year to date, handily making it one of the utility stocks that are too cheap to ignore.
There are utility stocks that are too cheap to ignore!
All stocks carry some risk, including the most defensive options like those mentioned above. Fortunately, in the case of utility stocks, that risk is minimal.
In my opinion, one or all of the stocks above would be a welcome addition as part of any well-diversified portfolio.
Canada’s inflation rate has skyrocketed to 6.9%, meaning you’re effectively losing money by investing in a GIC, or worse, leaving your money in a so-called “high interest” savings account.
That’s why we’re alerting investors to a high-yield Canadian dividend stock that looks ridiculously cheap right now. Not only does it yield a whopping 7.9%, but it pays monthly!
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Claim your free dividend stock pick * Percentages as of 11/29/22
Fool contributor Demetris Afxentiou has positions in Fortis. The Motley Fool recommends Fortis. The Motley Fool has a disclosure policy.