Hydro One (TSX:H) and Fortis (TSX:FTS) are two strong contenders in the utility sector, each offering unique advantages. However, when we compare the two, Hydro One stands out as the more attractive buy right now. So let's get into why.

Recent performance

Its recent earnings report demonstrated stable growth, with third-quarter earnings per share at $0.62, up from $0.60 the previous year. This growth reflects increased energy consumption and Ontario Energy Board-approved rate hikes. Fortis, while also showing improvement with third-quarter earnings per share (EPS) of $0.85, slightly up from $0.81, lacks the same level of consistency due to its exposure to multiple markets and regulatory environments.

Hydro One operates primarily in Ontario, which provides it with a monopoly in electricity transmission and distribution. This focused geographical presence might seem like a limitation, but it actually offers a significant advantage. The dividend stock operates in a stable and predictable regulatory environment, ensuring steady cash flows. Fortis, on the other hand, spans several jurisdictions, including parts of the U.S. and the Caribbean. While this diversification can drive growth, it also exposes Fortis to varying economic conditions and regulatory challenges, thus creating more uncertainty for investors.

In terms of valuation, Hydro One's price-to-earnings (P/E) ratio is slightly higher than Fortis's, standing at 23.6 compared to 18.9. While this might make Fortis appear more affordable, Hydro One's premium valuation reflects its stability and predictable performance. Investors often pay a higher price for companies that deliver steady growth and operate in low-risk markets, which is precisely Hydro One's strength.

The numbers

For income investors, Fortis has an edge with a dividend yield of 4%, compared to Hydro One's 2.8%. However, Hydro One's lower payout ratio of 64.6% compared to Fortis's 73.1% indicates more room for dividend increases or reinvestment into growth projects. This conservative approach aligns with Hydro One's focus on long-term stability and incremental growth, making it an appealing dividend stock for those prioritizing sustainable income.

Hydro One's financial health further cements its position as a reliable investment. Its total debt of $17 billion is significantly lower than Fortis's $32 billion, a difference that becomes even more pronounced when considering the scale of their operations. Both dividend stocks manage debt well. Yet Hydro One's smaller debt burden and focused investment strategy provide a stronger cushion in case of economic turbulence.

The growth prospects for Hydro One are particularly compelling. Ontario is undergoing a significant energy transition, with rising demand for electricity driven by electric vehicles and green energy initiatives. Hydro One is investing heavily in modernizing its grid and expanding its infrastructure to meet this demand. Fortis, while also planning significant capital expenditures, faces a more complex landscape due to its operations in multiple regions, each with its own economic and regulatory dynamics.

Foolish takeaway

Recent stock performance adds another layer of appeal to Hydro One. Over the past five years, its shareholders have enjoyed a compound annual growth rate of 16%, reflecting the company's ability to consistently deliver value. Fortis, while steady, has not demonstrated the same level of momentum, making Hydro One the more dynamic option for investors seeking both capital appreciation and income.

The regulatory environment plays a pivotal role in Hydro One's appeal. Operating under the Ontario Energy Board ensures a streamlined and transparent rate-setting process. This predictability is a stark contrast to the complex regulatory framework Fortis must navigate across its diverse geographic footprint. For investors prioritizing stability, Hydro One's regulatory simplicity is a significant advantage.

While both Hydro One and Fortis have much to offer, Hydro One's focused operations, stable regulatory framework, and consistent performance make it the more compelling choice for investors. Its growth potential, combined with a strong track record of delivering value, positions it as the utility stock to buy now. For those seeking a combination of stability, steady income, and growth, Hydro One shines brighter in today's market.