Canadian Utilities Limited’s Preferred Shares Offer Steady Income Amid Economic Headwinds

Canadian Utilities Limited (CU) has reaffirmed its commitment to preferred shareholders with the declaration of a quarterly dividend of CAD 0.30625 per share for its 2ND PF SH SER BB series (CUSIP: 13916T105), payable on June 1, 2025. This marks the latest installment in a stable dividend history for the Series BB preferred shares, which have maintained their quarterly payout at this rate since at least early 2024. The declaration, announced on April 10, 2025, underscores the utility giant’s focus on predictable income generation for preferred investors, even as broader economic and regulatory challenges loom.

Key Dividend Details

The Series BB preferred shares (CU.PR.E or CU.PRE.CA) trade at a 19.6% discount to their CAD 25 liquidation preference, offering an annualized yield of 6.09% based on their current market price of CAD 20.10. Dividends are designated as “eligible dividends” under Canadian tax law, providing tax efficiency for domestic investors. The ex-dividend date for this quarter’s payout is April 30, 2025, meaning shareholders must own the shares by the close of trading on April 29 to qualify for the dividend.

Historical Performance: Stability Amid Headwinds

The Series BB preferred shares have delivered unwavering consistency since their issuance in 2012. The quarterly dividend of CAD 0.30625 (equivalent to an annualized CAD 1.225) has remained unchanged for over two years, with no cuts or suspensions despite a challenging 2024 for the company. Canadian Utilities reported a 1.42% revenue decline and a 36% drop in earnings in 2024, driven by regulatory pressures and volatile energy markets.

This resilience stems from the shares’ cumulative structure, which requires dividends to be paid before any distributions to common shareholders. Even if dividends are delayed, they accrue and must eventually be settled, offering downside protection.

Market Context: High Yield, Discounted Valuation

The Series BB shares currently trade at a significant discount to their liquidation value, a phenomenon common in preferred markets during periods of rising interest rates. The 6.09% yield compares favorably to the 4.90% coupon rate at issuance, reflecting both the discount and the broader market’s risk appetite.

Investors should note, however, that the discount also implies potential undervaluation. Should CU’s financial performance stabilize or improve, the shares could narrow the gap to their CAD 25 par value, offering capital appreciation alongside income.

Risks and Considerations

While the Series BB preferred shares provide reliable income, several risks warrant attention:
1. Redemption Risk: Canadian Utilities may redeem the shares at CAD 25 per share starting September 1, 2021, at its discretion. While this hasn’t occurred yet, a redemption would force investors to reinvest proceeds in a potentially lower-yielding environment.
2. Earnings Volatility: The company’s declining earnings raise questions about long-term dividend sustainability, though preferred dividends historically take priority over common shareholder payouts.
3. Dividend Reinvestment Suspension: The Dividend Reinvestment Plan (DRIP) was suspended in July 2024, meaning all dividends are paid in cash. This eliminates compounding opportunities for reinvestors.

Conclusion: A Conservative Income Play with Caveats

Canadian Utilities’ Series BB preferred shares remain a compelling option for investors prioritizing steady, tax-advantaged income. The 6.09% yield, combined with the shares’ cumulative structure and discounted valuation, positions them as a defensive holding in today’s uncertain markets. However, the trade-off is clear: investors accept lower capital appreciation potential in exchange for reliability.

For long-term investors willing to overlook short-term price fluctuations, the Series BB shares offer a hedge against economic uncertainty. Yet, those seeking growth or exposure to Canadian Utilities’ equity upside should look elsewhere. As CU navigates regulatory and operational challenges, the preferred shares’ dividend remains a pillar of stability—a testament to their design, even in turbulent times.

In sum, the CAD 0.30625 quarterly dividend reaffirms CU’s commitment to preferred shareholders, making the Series BB a viable choice for conservative income portfolios—provided investors weigh the trade-offs between yield, capital risks, and the company’s evolving financial landscape.