The Utilities Play: Boring, Reliable, and Suddenly Profitable

Utilities have long carried an unfair reputation in the stock market. They’re often dismissed as slow, dull, and lacking upside — hardly the centre of exciting investment stories. 

But that perception misses the point. Utilities are built on predictability, regulated cash flows, and essential services, which makes them some of the most reliable businesses investors can own. That reliability, over time, quietly turns into something more appealing: meaningful profitability.

For conservative investors, income seekers, and anyone looking to stabilize a diversified portfolio, utilities deserve a closer look. What they lack in flash, they often make up for in steady compounding and growing income over time.

A simple way to invest in the sector

One straightforward way to gain exposure to Canadian utilities is through an exchange-traded fund (ETF) like iShares S&P/TSX Capped Utilities Index ETF (TSX:XUT). Over the past decade, XUT delivered a compound annual growth rate of roughly 9%, turning a $10,000 investment into about $23,610. That may not rival high-growth stocks, but it’s a strong outcome for a traditionally defensive sector.

The ETF currently holds 14 Canadian utility companies, with returns heavily influenced by its top five holdings, which together account for about 69% of the fund. 

These include the following: 

• Fortis: About 23% of the fund
• Brookfield Infrastructure Partners (TSX:BIP.UN): 14%
• Emera: 13%,
• Hydro One: 11%
• AltaGas: 8%

Each brings a blend of defensiveness and resilience from regulated assets, long-term contracts, and inflation-linked cash flows — ingredients that support dependable returns across market cycles.

Brookfield Infrastructure Partners: A prime example

Among these top holdings, Brookfield Infrastructure Partners appears to be particularly compelling. Analysts currently see it trading at an estimated 13% discount to intrinsic value, making it the most attractively valued name in the group.

BIP has delivered an impressive compound annual growth rate of about 14% over the past decade, growing a $10,000 investment into roughly $38,220. 

Recently, the company reported solid fourth-quarter and full-year 2025 results and increased its cash distribution by 5.8%, marking its 17th consecutive year of distribution growth. That growth remains well covered, with a 2025 payout ratio of 66% of funds from operations (FFO), consistent with its long-term average of 70% from 2016 to 2025.

The company’s strength lies in its diversified global portfolio of utilities, transport, midstream, and data infrastructure assets. Embedded inflation escalators, GDP-linked volume growth, and reinvestment of cash flows are expected to drive organic FFO growth of 6–9% annually.

From “boring” to powerful compounding

Brookfield Infrastructure Partners also actively recycles capital — selling mature assets and redeploying funds into higher-return opportunities. 

In 2025, it achieved its US$3 billion capital recycling target and aims to repeat that figure this year. Meanwhile, it ended the year with a record capital backlog of nearly US$9.2 billion, with data infrastructure accounting for US$7.1 billion of the backlog, representing a significant growth driver as the mega trend of digitalization and AI investments accelerates.

For long-term investors, this creates a powerful setup. Those who bought Brookfield Infrastructure Partners a decade ago started with a yield of around 5.5% and would now enjoy a yield on cost exceeding 10%. 

Investors only need to focus on when to buy the stock. (Forget about selling.) Today, with units trading below $50 and yielding about 5%, patient investors can still position themselves for solid long-term returns and growing income that outpaces inflation — especially by adding on market dips.

Investor takeaway

Utilities may never be exciting in the traditional sense, but that’s exactly their advantage. Through stable cash flows, disciplined capital allocation, and steady dividend growth, the sector — led by names like Brookfield Infrastructure Partners — shows how “boring” investments can quietly become very profitable over time.

The post The Utilities Play: Boring, Reliable, and Suddenly Profitable appeared first on The Motley Fool Canada.

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Fool contributor Kay Ng has positions in Brookfield Infrastructure Partners. The Motley Fool recommends Brookfield Infrastructure Partners, Emera, and Fortis. The Motley Fool has a disclosure policy.