Why Boring Utility Stocks Are Suddenly Looking Very Attractive

Utility stocks have a stereotype. They appear, at least to some investors, to be boring, slow investments that lack any real growth options. Some of that sentiment may be true. Utilities don’t have the insane growth of tech stocks, nor do they offer the headlines and volatility of commodities.

Instead, utility stocks deliver. They generate stable cash flow and pay reliable dividends. They also operate in heavily regulated environments where long-lasting changes occur rarely, if ever.

Yes, they are boring. But even boring has a place in a portfolio. A great example of that is right now, when global uncertainty is rising, commodity prices are moving quickly, and investors are seeking defensive investments.

Fortunately, the market provides the perfect option for investors in the form of these two boring utility stocks.

Fortis is boring, but it works in any portfolio

Fortis (TSX:FTS) is the embodiment of what boring utility stocks should be. It’s dependable and consistent in providing stable results. And right now, that’s not a bad thing.

Fortis is one of the largest utilities in North America. The company has 10 operating regions comprised of regulated gas and electric utilities that serve parts of Canada, the U.S., and the Caribbean.

The regulated nature of those utilities means that Fortis has a predictable and recurring cash flow and minimal volatility. That stability also means that Fortis can turn its attention to growth and its dividend.

That growth comes primarily in the form of expanding and modernizing its existing facilities. This represents a shift from the boring utility stocks with no growth stereotype. In fact, Fortis has earmarked over $28 billion in its capital improvement fund for those upgrades.

One of the main reasons why Fortis attracts investors is its dividend. Fortis offers investors a quarterly dividend that currently yields 3.2%.

The best part, however, is Fortis’s streak, which stands at 53 consecutive years. This makes that streak the second-longest in Canada, qualifying Fortis as a Dividend King.

That kind of consistency doesn’t happen by accident. It’s the result of a business model built on steady rate-based growth, disciplined capital planning, and a focus on essential infrastructure.

Now that interest rates have stabilized following years of increases, the appeal of utility stocks like Fortis has increased. Investors seeking stability and predictable returns will find Fortis is the ideal candidate to fill the role of a boring stock that pays.

Emera is a rare value opportunity

While Fortis represents stability, Emera (TSX:EMA) offers opportunity. Emera is another one of Canada’s boring utility stocks, with a portfolio of electric and gas facilities. The company’s facilities include assets in the U.S., the Caribbean and Canada. A good portion of Emera’s footprint is focused on the U.S. market.

That U.S. focus gives Emera access to a broader customer base in faster-moving markets. It also supports multiple rate-based expansion projects to further drive earnings growth over the long term.

Emera has lagged some of its utility peers in recent years. Part of the reason for that can be traced back to the impact of rising interest rates and by extension, higher debt service costs. This had the impact of driving the share price down and the yield up.

Now that rates have stabilized, Emera’s stock price has seen strong growth. In the trailing 12-month period, the stock has realized gains of 23%.

The company’s quarterly dividend offers a respectable 4% yield, making it a solid option for income-seeking investors.

Why these boring utility stocks suddenly look attractive

The appeal of boring utility stocks like Fortis and Emera comes down to a rotation shift in the market. With market volatility rising, investors are returning to the safety and reliability that utility stocks can offer. It also helps that interest rates have stabilized.

Both Fortis and Emera operate essential infrastructure, both generate predictable cash flow, and both stand to benefit from a more stable interest‑rate environment.

For long‑term investors seeking dependable returns, income, and resilience, these boring utility stocks are suddenly looking attractive.

The post Why Boring Utility Stocks Are Suddenly Looking Very Attractive appeared first on The Motley Fool Canada.

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Fool contributor Demetris Afxentiou has positions in Fortis. The Motley Fool recommends Emera and Fortis. The Motley Fool has a disclosure policy.