Everyone who has played Monopoly knows that you don’t win by cornering the utilities market. There are only two on the board, Waterworks and Electric Company, and the reward for owning either or both is very modest.
It’s the same way in the real world. Utility stocks provide decent cash flow, but nothing eye-popping. As for capital gains potential, it’s very limited.
So, why do I keep suggesting that utility stocks should be among the core holdings of a well-managed income portfolio? Several reasons.
Dependable revenue. Most of the revenue earned by utilities is regulated. That means local, provincial, or national boards set the rate the companies can charge to deliver gas, electricity, or water. The permitted rate is based on several factors, but it will always be at a level that allows the company to earn a reasonable profit. No regulatory commission wants to bankrupt a provider of essential services.
Predictable profits. Dependable revenue normally translates into predictable profits. Utilities have two major cost centres – interest charges for servicing their heavy debt, incurred by investing in infrastructure, and continuing operating and maintenance costs. These expenses are usually foreseeable and included in budget forecasts. The major wild card is the cost of buying the commodities they distribute (e.g., natural gas, electricity) if they don’t produce it themselves.
Rising dividends. Regulators normally allow utilities to make small but regular increases to the dividends paid to investors. The two Canadian companies with the longest track record of increasing their payout at least once a year are both utilities: Fortis Inc., based in St. John’s, and Calgary-based Canadian Utilities Ltd. Both have boosted payments for 51 consecutive years and counting.
With this kind of record, it’s not surprising that we have several Canadian utilities on my Income Investor newsletter recommended list. All are worth considering, but my preferred choice is Fortis. Here’s a look. Prices are as of Friday.
Fortis Inc. (FTS-T)
Type: Common stock
Current price: $64.61
Originally recommended: Jan. 28/16 at $38.14
Annual payout: $2.46
Yield: 3.8 per cent
Risk: Lower risk
Website: www.fortisinc.com
Comments: Fortis supplies gas and electricity services to about 3.4 million people across Canada and in the U.S. and Caribbean. It uses a decentralized business model. Its companies include the following:
ITC Holdings Inc. ITC owns and operates 26,100 km of transmission lines in the midwestern U.S. They have a combined peak load exceeding 22,683 megawatts and are regulated by the U.S. Federal Energy Regulatory Commission.
UNS Energy Corp. This subsidiary owns Tucson Electric Power and UniSource Energy Services. The company provides gas and electricity services to about 725,000 customers in Arizona. It has 3,442 MW of generating capacity.
Central Hudson Energy Corp. This is a regulated transmission and distribution utility which serves about 405,000 customers in New York’s Mid-Hudson River Valley. It owns 2,400 km of gas pipelines and 15,300 km of power lines.
Caribbean Utilities Co. Fortis owns about 60 per cent of this publicly traded company (CUP.U-T). It is the sole electricity provider on Grand Cayman, Cayman Islands.
FortisTCI Ltd. This small company provides electricity to the Turks and Caicos Islands. The company is comprised of two integrated regulated electric utilities.
Fortis Belize Ltd. his company generates 100 per cent renewable energy through the operation of three hydroelectric facilities on the Macal River in western Belize. Generating capacity is 51 MW.
Other Fortis companies service areas within Canada and include Newfoundland Power, Maritime Electric, FortisBC, FortisAlberta, FortisOntario, and Wataynikaneyap Power, which is majority-owned by 24 Ontario First Nations in partnership with Fortis (39 per cent).
Fortis recently released results for the first quarter of 2025, and they were in line with expectations. Net earnings were $499-million ($1 per share), up from $459-million (93 cents a share) for the same period last year. Capital expenditures in the quarter were $1.4-billion. That was on track for the $5.2-billion budgeted for the full year.
“We are off to a strong start in 2025,” said CEO David Hutchens. “Our utilities are executing their capital programs while continuing to actively pursue incremental investment opportunities, particularly at ITC and Tucson Electric Power.”
The shares pay a quarterly dividend of 61.5 cents ($2.46 a year) to yield 3.8 per cent at the current price. Management targets an annual dividend increase in the range of 4 per cent to 6 per cent.
The outlook is for continued modest annual dividend increases for as far out as we can see. There is some modest capital gains potential if the Bank of Canada starts to lower interest rates again.
Bottom line: Apart from predictability in revenue and profits, Fortis also offers geographic diversification. It’s a good fit for all income portfolios.
Gordon Pape is editor and publisher of the Internet Wealth Builder and Income Investor newsletters.