Best Canadian Utilities ETFs

Utility stocks in the list of high-paying stocks – sounds too good to be true, right? 

These are the most mundane things, but utilities are critical in today’s economy. Consider what life would be like if you didn’t have access to power, safe drinking water, or garbage pickup. Things would be different – in a rather unpleasant way.

This is the basis of Canadian Utilities ETFs to track the total return of an index of the best-performing utility companies in Canada, such as power producers and telecom companies. Investing in an ETF vs. stocks also diversifies risk across the whole sector.

Utility companies have benefited from the high value placed on fundamental customer amenities like electricity and running water. As a result, some utilities are among the most profitable enterprises globally, with consistent income and growth. Utility ETFs are popular among investors for a reason. Utility ETFs are widely used in portfolios as low-volatility, income-producing, lower-risk and safe dividend vehicles.

7 Canadian Utilities ETFs You Should Invest In (+Bonuses)

Here are five Canadian utilities exchange-traded funds (ETFs) with a track record of sustained growth and profitability for Canadian investors. (Please check the indicated rates as they change often). Weève also includes some US funds and individual stocks that may be of interest.

Horizons Canadian Utility Services High Dividend Index ETF (TSX:UTIL)

Horizons Canadian Utility Services High Dividend Index ETF (UTIL) is a dividend-focused ETF that offers investors exposure to Canadian utility service companies listed on the Toronto Stock Exchange (TSX).

With UTIL, investors can gain exposure to three major segments of the utility services sector: utilities, pipelines and telecommunications, which have historically functioned as defensive industries, offering investors relative stability and consistent dividends, even during periods of volatility and bear markets.

Invesco S&P 500 Equal Weight Index ETF (TSX:EQL)

Invesco Ltd. is a global independent investment decisions management organization dedicated to helping individuals get more out of life via investing. EQL aims to replicate the performance of the S&P 500® Equal Weight Index, or any successor to it, on an unhedged basis in the case of unhedged units or on a hedged basis in the case of hedged units, to the extent reasonably achievable and before fees and expenses (management fees). This Invesco ETF invests mainly in equity securities of corporations listed in the United States, either directly or indirectly.

As of December 31, 2021, Invesco managed US$1.6 trillion in assets under management on behalf of clients worldwide, with offices in more than 20 countries. This ETF promises a current dividend yield of 1.393% and pays quarterly cash dividends of 0.109 CAD (Canadian Dollar) per share.

Trading at a stock price of $30.01 as of March 24, 2022 (2:10 PM), this Canadian utilities company has immense growth potential and shows impressive performance. In addition, the P/E ratio of 18.70 further cements the possibility of significant returns on investment.

iShares S&P/TSX Capped Utilities Index (TSX:XUT)

The iShares S&P/TSX Capped Utilities ETF seeks to provide long-term capital growth by replicating, to the extent possible, the performance of the S&P/TSX Capped Utilities Index (the “Index”), net of expenses. Under normal market conditions, the ETF will primarily invest in equity securities issued by Canadian issuers participating in the utility sector. The Index comprises constituents of the S&P/TSX Composite Index that are assigned to the following GICS Sector: Utilities (55). Individual constituents are capped at 25% weight.

Invesco Canadian Dividend Index ETF (TSX:PDC)

Invesco’s Canadian Dividend Index ETF aims to replicate the performance of the TSX Utilities Capped Index (TTUT) as far as possible without fees or charges. The CDs ETF’s objective is to combine the long-term capital growth potential of the Canadian utility sector with a dividend yield of 2.5% and a price-to-earnings ratio of 0.01. The Canadian Dividend ETF aims for long-term capital growth by replicating the returns of Canadian utility stocks with an average annual dividend yield of 1.7%.

BMO Covered Call Utilities ETF (TSX:ZWU)

If you are looking for a solid yield and low-cost combination, VPU is excellent. The Call Utilities ETF, which I covered in my previous post on the Canadian Dividend ETF market, is one of the best options available to any investor.

BMO Financial Group’s ETF business, founded in May 2009, is the leading ETF provider in Canada. Traded on the Toronto Stock Exchange under ETFBMO – REIT and the Canadian Dividend Index. It pays an annual dividend of C $1.00, corresponding to a dividend yield of 2.7% and a price-earnings ratio of 0.01. As of March 5, 2021, the Company has written off a total of $1,832,000 in dividends and $9.5 million in assets under management.

BMO Equal Weight Utilities Index ETF (TSX:ZUT)

BMO has been offering ETFs to track this sector for some time: ZUT is an equal-weighted ETF – utility ETF, ZQQ is a Canadian dollar-hedged ETF that tracks the Nasdaq 100, ZUH is the Canadian dollar hedging U.S. health fund.

If you want to invest in several Canadian providers but do not have the capital to buy them individually, try this ETF. ETF invests in 16 Canadian utilities, including Canadian gas, Canadian Power Generation and Canadian Hydroelectric Power.

The BMO Canadian Dividend ETF offers a yield-weighted portfolio of stocks that pay Canadian dividends. You can find out more about this exchange-traded fund on its website here. ETFs will trade from March 5, 2021, in the same language as official filings with the U.S. Securities and Exchange Commission.

iShares S&P/TSX 60 Index ETF (TSX:XIU)

If you want an ETF that tracks the Canadian market, focusing on dividend income and total return, XIU is the best Canadian dividend ETF you should have in your portfolio. While you can hunt for high-yielding dividend shares, finding a high-yielding and safe yield is as easy as it was on March 11, 2021. The fund trades at a price-earnings ratio of 0.01 and a dividend yield of 2.5%.

The broad Canadian equity ETF is the best choice if you genuinely dislike financial and energy stocks and are willing to pay more. ETFs of Canadian banks are great; I think it’s much better to hold individual Canadian bank stocks than rely on one sector – unique ETFs. In this case, you could buy a basket ETF that effectively replicates the TSX in industries you don’t want. Still, you can add sector ETFs to complement your investments in the broader ETF and invest in utility ETFs for Canada. If you are looking for more options, you should also explore the Canadian Energy ETF or Nat-Gas ETF.

Brookfield Infrastructure Partners (TSX:BIP.UN)

Brookfield Infrastructure Partners is a stock, but their utilities portfolio is well diversified, and every Canadian utilities ETF holds this stock. Just check out their portfolio of assets below.

Brookfield Infrastructure Partners L.P. owns and operates utilities, transport, midstream, and data businesses in North and South America, Europe, and the Asia Pacific. The company’s Utilities segment operates approximately 61,000 kilometres (km) of operational electricity transmission and distribution lines; 5,300 km of electricity transmission lines; 4,200 km of gas pipelines; 7.3 million electricity and gas connections; and 360,000 long-term contracted sub-metering services.

This portfolio segment also offers heating and cooling solutions; gas distribution; water heaters; heating, ventilation, and air conditioner rental; and other home services. In addition, its Transport segment offers transportation, storage, and handling services for merchandise goods, commodities, and passengers through a network of approximately 22,000 km of track; 5,500 km of track network; 4,800 km of rail; 3,800 km of motorways; and 13 port terminals.

The company’s Midstream segment offers gas transmission, gathering and processing, and storage services through approximately 15,000 km of natural gas transmission pipelines; 600 billion cubic feet of natural gas storage; 17 natural gas processing plants; and 3,900 km of gas gathering pipelines, as well as one petrochemical processing complex.

Its Data segment operates approximately 148,000 operational telecom towers; 8,000 multi-purpose towers and active rooftop sites; 10,000 km of fibre backbone; 1,600 cell sites and about 12,000 km of fibre optic cable; and 2,100 active telecom towers and 70 distributed antenna systems, as well as 50 data centers and 200 megawatts of critical load capacity.

Vanguard Utilities ETF (NASDAQ:VPU)

This Vanguard ETF offers exposure to the domestic utilities sector, a corner of the U.S. market that has historically exhibited low volatility and often features an attractive distribution yield. As a sector-specific ETF, VPU is probably more appealing to investors looking to establish a shorter-term tactical tilt or make a sector rotation play than it is to those building a long-term, buy-and-hold portfolio (though utilities generally receive a relatively small weight in broad-based equity ETFs, meaning that a complementary holding could result in more balanced sector weightings).

Vanguard also offers a variety of ETFs, including the Vanguard Utilities ETF and the VIX Canadian Fixed Income Fund. Canadian fixed income portfolio consists of federal and provincial corporate bonds, focusing on utilities, energy, real estate, and financial services.

Utilities Select Sector SPDR – Largest Market Capitalization (NASDAQ:XLU)

The investment aims to produce investment outcomes that, before fees and expenses, are usually comparable to the price and yield performance of publicly traded equity securities of businesses in the Utilities Select Sector Index. The fund uses a replication technique to match the index’s performance. It typically invests a significant portion of its total assets in the securities that comprise the index. Electric utilities, water utilities, multi-utilities, independent power and renewable electricity providers, and gas utilities are represented in the index. 

XLU is the largest ETF in terms of assets, with $10 billion in assets under management. The Utilities Select Sector Index is XLU’s goal benchmark. It has many of the same holdings as VPU and other utilities ETFs but with only 28 holdings, as it is a non-diversified fund. 

Trading at $71.52 as of March 24, 2022 (2:22 PM), the prospects for this are promising. It is an excellent option with a market capitalization of 14,352,215,924 and a P/E ratio of 24.30.

iShares Global Utilities ETF (NASDAQ:JXI)

The investment aspires to replicate the performance of the S&P Worldwide 1200 Utilities (Sector) Capped IndexTM, which is made up of global utility stocks. Accordingly, the fund will typically invest at least 80% of its assets in the index’s component securities and investments with economic characteristics that are substantially identical to the index’s component securities, with up to 20% of its assets in certain futures, options, and swap contracts, as well as cash and cash equivalents.

JXI invests in various countries, including the United States, the United Kingdom, Germany, France, and others. This product will appeal to investors who believe there are better prospects abroad but want to be exposed to a strong segment of the U.S. economy.

Trading at share prices of $62.66 as of March 24, 2022 (2:35 PM), this ETF has the best prospects compared to other utility stocks, making it the best investment time. In addition, its optimum P/E ratio of 21.60 speaks for the profitability of this utility stock.

Fidelity MSCI Utilities Index (NASDAQ:FUTY)

The Fidelity MSCI Utilities Index ETF (FUTY) tracks an index of utility equities in the United States, a sector with moderate equity volatility and strong dividend yields. A fund like FUTY can help you gain exposure to a low-risk category that can help you boost your existing returns. FUTY, like most sector ETFs, appeals to portfolio managers that use a sector rotation approach. Most long-term buy-and-hold investors will likely gain utility exposure through broad-based equities funds (though the allocation to this sector can be relatively small).
Their investment process intends to generate investment returns that are usually consistent with the performance of the MSCI USA IMI Utilities 25/50 Index before fees and expenses. At least 80% of the fund’s assets under management are invested in equity securities that are part of the underlying index. As a result, it offers an 0.08 percent expense ratio or $8 for every $10,000 invested. 

Trading at a stock price of $46.07 as of March 24, 2022 (2:26 PM) is an excellent option for long-term stock market success. FUTY presently has a market capitalization of 1,276,139,000, and its P/E ratio stands at 23.40.

Algonquin Power & Utilities Corp. (TSX:AQN)

Algonquin Power & Utilities Corp is a generation, transmission, and distribution company in North America. Algonquin Power owns and operates regulated water, natural gas, and electricity distribution utilities in the United States as part of its distribution group. This division generates most of the company’s revenue, with natural gas distribution accounting for most of that revenue.

Algonquin Power is a renewable energy company that sells electricity generated by its energy facilities, including hydroelectric, wind, solar, and thermal power plants, through its generation group. The majority of Algonquin’s generation revenue comes from its wind farms. Finally, the transmission business of the corporation is responsible for the construction and investment in natural gas pipelines and electric transmission systems.

Algonquin is set to pay a record cash dividend of USD 0.1706 (Canadian Dollar 0.2161) on April 14, 2022, from January 1, 2022, to March 31, 2022. Trading at a stock price of $19.07 as of March 23, 2022 (2:03 PM), the company is a stock market hit. The market cap of $12B speaks for the value of this stock.

Canadian Utilities (TSX:CU)

Canadian Utilities Limited is a member of the ATCO Group of companies. Canadian Utilities Limited is a Canada-based worldwide organization of companies with assets of approximately $7.3 billion and more than 6,500 employees in three main business divisions: power generation, utilities, and global enterprises.

Canadian Utilities pays an annual dividend of C $1.00, equating to a dividend yield of 2.7% and a price-to-earnings ratio of 0.01. Unfortunately, the Canadian utility does not generate enough cash to cover the dividend and has paid out more than twice as many dividends as it has paid out in profits. Unfortunately, Canadian utilities pay out less than half of the reported profit and do not generate enough returns on invested capital to cover dividends.

Canadian Utility Stocks vs ETFs

We wanted to include a few key utilities stocks in our list, as they are key players in Utilities ETFs. Utilities stocks comprise a Utility ETF, which is supposed to be diversified across the industry. To that effect, utility stocks have a potential for a much higher return, but the risk is all in one company. As a result, top-performing utility companies can afford high yields.

Conventional mutual funds often invest in utilities, which are vital to the Canadian economy and function. You should note that the fund’s net asset value does not directly indicate its market capitalization.

ETFs have different selection criteria; if a stock falls outside the requirements, it will not be part of the fund. As a result, they hold only a limited number of shares, not all in the same portfolio. These investments are based on overall performance, so the share price can fluctuate like any stock. Investing in individual utilities stocks carries more risk than investing in ETFs.

Why You Should Invest in a Canadian Utilities ETF

There are three clear reasons to invest in a Canadian Utilities ETF. To begin with, many utilities are a need in today’s environment, and the demand for these businesses will only expand in theory as our population continues to grow, leading to a good total return over the years.

Second, utility businesses are known for their low equity volatility and high dividend yields, which provide investors with a consistent income stream regardless of Canadian market conditions, an excellent alternative for monthly income funds. Finally, these businesses may prove to be recession-proof; irrespective of the state of the economy and economic growth, people still need to utilize power and other utilities to go about their everyday lives.

These reasons make a Canadian Utilities ETF a sustainable and stable investment while simultaneously helping you diversify your portfolio with ETFs having impressive performance.

The Bottom Line

Utilities ETFs can be an excellent method to diversify a portfolio with income-producing stocks. In a low market cycle, the utility sector is viewed as defensive and thus a good hold. Despite being a generally stable growth investment, it may not be suited for you. But if you’re interested in high-risk, high-reward stocks, this might be your poison.

Past performance does not reflect future values; investors do so at their own risk and sole discretion.

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Sources

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