What are we looking for?
Utility companies (electricity, natural gas, water and renewable providers) are considered defensive investments as a result of stable demand and predictable cash flows. These stocks are sensitive to interest rates, regulation and capital structures which makes their valuation unique compared to other sectors.
The five-year Government of Canada benchmark yield on Oct. 16, 2026, midday was 3.54 percent. The average dividend yield from the list below is 3.85 percent with a range from 1.5 to 5.5 percent. The iShares S&P/TSX Capped Utilities Index ETF (XUT-T) provides a useful diversified benchmark for the Canadian utility sector with a five-year historical annualized total return of 6.3 per cent (including dividends). That ETF had an 11 per cent drawdown in 2022 and saw 19 per cent upside in 2025.
Let’s look at common valuation factors and what the stockcalc models are telling us for valuations here.
The screen
We used stockcalc’s screener to select the top 10 listed utility companies by market capitalization on the TSX. We then used stockcalc’s valuation tools to calculate fundamental (or intrinsic) valuation for each stock to see if it is undervalued or overvalued compared with its price.
Overview of the techniques used:
- Discounted cash flow (DCF value) is a valuation technique in which cash-flow projections are discounted back to the present to calculate value per share;
- A price comparables (price comps) technique values the company on the basis of ratios from selected comparable companies;
- An adjusted book value (ABV) is calculated by multiplying book value per share by its 10-year average price-to-book ratio.
- If we have analyst coverage, we may consider the consensus target price.
More about stockcalc
Stockcalc is a fundamental valuation platform with tools to calculate and report on value per share for thousands of public companies listed on major North American stock exchanges. Stockcalc also contains numerous tools to understand what the stocks you are investing in are worth. Globe Unlimited subscribers can subscribe to stockcalc using the promo code Globe30, which offers a 30-day free trial and special pricing for the second month.
Valuation background:
There are a number of key factors that affect the valuation of utilities including:
Interest rates and inflation: Utilities are bond-proxies wherein higher interest rates lead to lower valuations since dividends compete with bond yields.
Capital intensity: Heavy debt financing makes leverage, credit ratings and interest costs critical valuation inputs. Utilities can carry a very high debt to total capital ratio when cash flows are as stable as they are in this industry. The DCF values for these companies are very sensitive to the Capital Expenditure (capex) values used. We are testing AI tools (Natural Language Processing or NLP) to see if we can improve our capex projection data for industries like this.
Dividend stability: Dividend payout policies and more importantly their stability impact pricing significantly for this industry.
What we found
The stocks on this list are down on average about 7 per cent over the last 12 months with most of that happening since mid-July. It appears higher bond yields forced a valuation adjustment on these stocks. If yields stabilize this could present an attractive entry point for some of these stocks. You can see in the accompanying table the percentage difference between each stock’s recent close price and its intrinsic value. The stockcalc valuation column is a weighted calculation derived from our models and analyst target data if used. Let’s look at a couple of these companies:
Canadian Utilities Ltd (CU-T) offers gas and electricity services. The company is engaged in segments that include ATCO Energy Systems, ATCO EnPower, ATCO Australia, and Corporate & Other. Headquartered in Calgary, the firm primarily operates in Canada and Australia. On Oct. 6, Canadian Utilities announced a proposed $14-billion all-stock merger with Emera EMA-T with the merged company continuing under the Emera name. Emera will retain approximately 60 per cent of the combined company. The transaction valued CU-T Class A shares at approximately $51.57 based on Emera’s price at the announcement. Our models are mixed on CU-T with our weighted value higher than current price.
Algonquin Power & Utilities Corp (AQN-T) is a Canada-based diversified international generation, transmission and distribution company. The company’s operations are organized across two business units consisting of the Regulated Services Group and the Hydro Group. Algonquin has been reducing its debt level over the last few years by selling assets, retiring debt, reducing dividends and moving away from acquisitions. Our models show the largest upside for AQN-T with the note our DCF is negative due to the debt level compared to cash flow being generated.
Investing involves risk. Stockcalc accepts no liability whatsoever for any loss or damage arising from the use of this analysis.
Brian Donovan, CBV, is the president of StockCalc, a Canadian fintech based in Miramichi, N.B.