On the Toronto Stock Exchange, if investors want to consider adding a dividend stock to their portfolio right now, it has to be Canadian Utilities (TSX:CU). Not just because this utility stock was the original dividend king stock in TSX, with a history of over 50 consecutive dividend increases, but because of the company’s excellent track record of consistently creating value for shareholders. Here are a few reasons to still consider buying this stock under current market conditions.
Over the past few years, Canadian Utilities stock has seen a slight decline in earnings due to inflation and interest rates. However, even so, the company’s stock has seen relatively stable earnings. The third quarter earnings report showed that the company’s adjusted earnings amounted to C$87 million, down from C$120 million in 2022. But Canadian investors still have reason to keep future growth in mind for this utility stock.
Canadian Utilities has been making deals and partnerships to expand recently, including a recent agreement with the Chiniki and Goodstoney First Nations to build the largest solar facility in an urban centre in Western Canada. The company has also signed a 12.5-year virtual power purchase agreement with Lafarge, which will purchase 100 per cent of the solar power generated by the Empress solar project. With the company’s long history of growth, acquisitions and expansions, there are likely to be more such deals in 2024.
As mentioned above, Canadian Utilities has invested in the largest solar facility in Western Canada. However, this is not the only renewable energy sector in which the company has invested. In fact, the company has travelled to South Australia to form a joint venture for the South Australian Hydrogen Jobs Programme. The project will see the construction of a 250 megawatt (MW) hydrogen production facility, a 200 MW hydrogen-fuelled power generation facility and a hydrogen storage facility. These will be completed in the second quarter of 2024.
Fundamentally, this dividend stock remains a good value, with a P/E ratio of just 14.78x and a current share price of 1.68x book value. In addition, the enterprise value is just 9.03 times EBITDA. As a result, the company still has a lot of cash on hand to invest more in the near future.
It’s worth pointing out that Canadian Utilities shares are still down about 13% over the past year. Once the company’s earnings show a significant improvement, investors are likely to see a rapid recovery in the share price. As such, now is certainly a great time to buy. The stock’s current dividend yield of 5.55% is considerably higher than the five-year average dividend yield of 4.92%. What’s more, the dividend is still quite safe, and the 82% payout ratio doesn’t expose it to any serious risk, especially if the market is gearing up for a recovery.
