3 Reasons to Buy and Hold Fortis Inc. Forever

Fortis Inc. (TSX:FTS) is a must-have investment in any long-term buy-and-hold stock portfolio.

| More on:
The Motley Fool

The formula to investing success is relatively simple. Identify and invest in stocks which are trading at a discount to the intrinsic value of their underlying business, have stable earnings and a wide economic moat.

An important attribute of companies which possess these characteristics are their ability to continue rewarding loyal investors year after year and have done so for decades.

One company that stands out for all of these reasons is Canadian electric utility Fortis Inc. (TSX: FTS).

Its strengths boil down to a few key points.

First and foremost, its business is impossible to replicate. Not only does it require a considerable capital investment to commence operations in the electric utilities industry, but it is heavily regulated. For these reasons the electric utility industry has steep barriers to entry which minimize competition and protect Fortis’ competitive advantage.

Second, Fortis’ business is effectively recession-proof. Electricity is an essential component of our modern lives, without which society would essentially cease to function. This makes demand for electricity inelastic and essentially immune to the vagaries of the economic cycle or the ups and downs of the economy.

Not only does this reduce its earnings volatility and give Fortis a degree of pricing control but it essentially guarantees future earnings growth when coupled with its growth strategy.

More importantly for investors, Fortis has continued to expand its business through a range of acquisitions, the most recent being the acquisition of UNS Energy Corporation. This has boosted its presence in Arizona, giving it a regulated energy delivery and electricity asset with approximately 657,000 electricity and gas customers.

Third, and the the real reason for holding Fortis, is the company’s ability to keep hiking its dividend. Since commencing dividend payments in 1972, Fortis has hiked its dividend almost every year. Even through the global financial crisis when other companies were slashing or even terminating their dividends as a means of preserving capital Fortis continued to hike its dividend. This gives it a solid dividend yield of 3.4% coupled with a sustainable payout ratio of 84%.

I also expect Fortis to continue hiking its dividend as it beds down the acquisition of UNS Energy, which coupled with its wide economic moat and the inelastic demand for electricity, will see earnings grow over the long-term.

Fortis is a dividend machine, which continues to reward investors with regular dividend hikes and a yield in excess of other investments which are perceived as lower risk such as treasuries and cash. This is one company investors should buy and hold forever, reaping the benefits of the steadily growing income stream coupled with solid potential for capital growth.

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 Matt Smith has no position in any stocks mentioned.

More on Dividend Stocks

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

This High-Yield Dividend Stock Is a Monster Passive-Income Machine 

This top TSX dividend-growth stock offers a 7.4% yield.

Read more »

Hourglass projecting a dollar sign as shadow
Dividend Stocks

For a Shot at $5,000/Year in Passive Income, Buy 6,850 Shares of This TSX Stock

Whitecap Resources is a monthly dividend stock that offers you a tasty dividend yield while trading at a cheap valuation.

Read more »

edit Balloon shaped as a heart
Dividend Stocks

Love Value Stocks? 2 That Are Screaming Buys in May 2024

Patience can pay off by investing in these two value stocks with nice dividends and the potential to turn around.

Read more »

Senior Couple Walking With Pet Bulldog In Countryside
Dividend Stocks

2 Everlasting Canadian Stocks for Your RRSP

The Canadian National Railway (TSX:CNR) stock is worth owning for the long haul.

Read more »

Business success with growing, rising charts and businessman in background
Dividend Stocks

3 Stocks Set for Dividend Increases This Year

Here are three TSX stocks that are set to increase their dividends later this year.

Read more »

Dice engraved with the words buy and sell
Dividend Stocks

EQB Inc Stock: Buy, Sell, or Hold

EQB Inc (TSX:EQB) is Canada's fastest-growing bank.

Read more »

pipe metal texture inside
Dividend Stocks

Enbridge Stock: Buy, Sell, or Hold Today?

Enbridge is up 7% in the past six months. Are more gains on the way?

Read more »

money cash dividends
Dividend Stocks

The 2 Stocks Every Dividend Investor Should Own for Reliable Cash

Dividend stocks offering consistent and reliable returns can be a crucial asset in any portfolio, especially for income-producing dividend portfolios.

Read more »