This Boring Company Has Delivered 41 Straight Dividend Hikes

How to earn a 16% yield from this boring utility company.

| More on:
The Motley Fool
You’re reading a free article with opinions that may differ from The Motley Fool’s premium investing services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn more

Picture this…

Imagine if you owned a cash machine. Day in and day out this little gizmo lines your bank account with a steady stream of cheques. And the money continues to roll in while you sleep, watch television, or travel the world.

As fantastic as it sounds, in a very real sense this is exactly what it’s like to own dividend-paying stocks. And given enough time, some of these companies can generate yields of 10%… 20%… even 50% on your original investment.

The trick is to identify wonderful companies with a sustainable competitive advantage and then hold on for the long haul. And no company demonstrates the success of this strategy better than Canada’s largest electric utility, Fortis (TSX: FTS).

Earn a 16% yield from this boring utility company

Fortis is an example of what decades of small distribution hikes can do for a stock’s yield.

For over a century this company has dominated its industry and has increased its dividend to shareholders every year since 1972. Since the start of the century, Fortis has increased its dividend at a 7.9% clip. If you had bought and held the stock over that time, your yield on cost would be 16.1% today.

To see what I’m talking about, take a look at the chart below. This example assumes you purchased Fortis at around $7.70 per share near the beginning of 2000.

Year

Dividend per Share

Yield on Cost

2013

$1.24

16.10%

2012

$1.20

15.58%

2011

$1.16

15.06%

2010

$1.12

14.55%

2009

$1.04

13.51%

2008

$1.00

12.99%

2007

$0.84

10.91%

2006

$0.76

9.87%

2005

$0.64

8.31%

2004

$0.54

7.01%

2003

$0.52

6.75%

2002

$0.51

6.65%

2001

$0.50

6.44%

2000

$0.46

6.03%

Source: Company filings

Assuming Fortis continues to increase its dividend by 7% pace for another decade, by 2023 the yield on our original investment will have grown to 32%.

How safe is your portfolio from a dividend cut?

Fortis is one of those forever companies with an unbreachable competitive moat. It’s vital to your day-to-day life as it supplies the electricity needed to power our modern lives. Nearly 90% of the company’s assets are regulated utilities serving over 2 million customers across Canada, the United States, and the Caribbean. In times of recession, the utility bill is one of the last to go unpaid. This makes the company virtually depression-proof.

Fortis’ business is also a natural monopoly. While competitors may see the company earning big profits, it’s simply uneconomic for two utilities to supply power to the same region. This means Fortis can continue to earn excess returns for shareholders year after year without the worry of a competitor driving down margins.

Given all this, is it any wonder as to how Fortis has been able to increase it dividend payout for over four decades? Think of everything that has happened since that time. The world has been through oil embargoes, asset bubbles, and financial crises.

Yet for Fortis, it has hardly mattered. For more than 40 years the company has continued to mail out a steadily increasing stream of dividend cheques to shareholders. Because of the company’s proven ability to hold up in good times and bad, investors can count on this stock to crank out those distributions for decades more to come.

Foolish bottom line

No, there are no sure things in investing. But history shows that it’s companies like Fortis who boast a sustainable competitive advantage and regularly reward their shareholders that outperform over the long haul. For investors looking to build their own cash machine, this would be the place to start.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Robert Baillieul has no positions in any of the stocks mentioned in this article.

More on Investing

Profit dial turned up to maximum
Dividend Stocks

1 Undervalued Canadian Dividend Stock to Buy for TFSA Passive Income and Total Returns

This cheap Canadian energy stock provides an attractive dividend yield for TFSA passive income and a shot at some big…

Read more »

money cash dividends
Dividend Stocks

Want Passive Income? 1 TSX Stock for $8/Day in Dividends

If you need cash right away, then this TSX stock can make you passive income from a stable dividend that…

Read more »

edit Balloon shaped as a heart
Dividend Stocks

My 3 Favourite TSX Dividend Stocks Right Now

Canadian dividend stocks make for great long-term buy-and-hold investments.

Read more »

value for money
Dividend Stocks

3 Incredibly Cheap Dividend Stocks to Buy for Dependable Passive Income

Now is an excellent time to load up on Canadian dividend stocks. Here are top picks that are all trading…

Read more »

A close up image of Canadian $20 Dollar bills
Dividend Stocks

3 Simple TSX Stocks to Buy With $25 Right Now

Canadians with capital of as low as $25 can purchase three simple stocks right now and earn recurring passive income…

Read more »

edit Person using calculator next to charts and graphs
Dividend Stocks

2 No-Brainer U.S. Stocks for Investors in August

Here are two undervalued U.S. stocks to diversify your investment portfolio. They both pay safe and growing dividends!

Read more »

TIMER SAYING TIME FOR ACTION
Tech Stocks

Got $300? 2 Simple TSX Stocks to Buy Right Now

Investing whatever little sum you have saved up as soon as possible is one of the best ways to keep…

Read more »

money cash dividends
Stocks for Beginners

Grow Your $2,000 and Get $160 Income, Too: Buy 2 TSX Stocks Now

What if a stock can give both dividends and growth? You can have your cake and eat it too with…

Read more »