Dividend-growth investing is one of the least complicated means of achieving financial freedom. By investing in companies that have long histories of making reliable, steadily growing dividend payments you can build a recurring and ever-expanding income stream. One company that stands out as a core holding in any dividend portfolio is Canadian Utilities Ltd. (TSX:CU).
Now what?
As an electric utility, Canadian Utilities operates in a heavily regulated industry that provides a product that is consumed on a daily basis by millions of Canadians. In fact, the demand for electricity rarely ever wanes because it is a core part of our daily lives and modern commercial activity. Plus, as economies and populations grow, demand for electricity rises, virtually guaranteeing that Canadian Utilities’ earnings will grow over time.
A crucial part of Canadian Utilities’ business model is its wide economic moat that protects its competitive advantage as well as its future earnings growth.
You see, Canadian Utilities is one of Canada’s leading utilities with a globally diversified portfolio of utilities assets operating in power generation as well as natural gas and electricity distribution. The capital investment required to replicate such a portfolio of utilities assets is tremendous, and this helps to protect Canadian Utilities competitive advantage. There are also significant regulatory hurdles that make it extremely difficult for companies to enter the utilities industry.
These aspects of Canadian Utilities’ business reinforces its economic moat and, along with the inelastic demand for electricity, have allowed Canadian Utilities to consistently grow its earnings over the long term. It also gives it a dependable source of cash flow that can be used to fund acquisitions or investments in the development of existing assets, thereby allowing it to continue growing its business.
These aspects of its performance have allowed it to continually grow its earnings over the long term, and are a key reason why it has regularly paid a dividend since 1972 and hiked that dividend every year since then.
If you take a look at the chart below, you can see what I am referring to.
Source: Canadian Utilities Investor Relations.
It was only in April this year that Canadian Utilities increased its dividend yet again by a 10% bump, giving it an annualized dividend of $1.18 per share. After such an impressive history of dividend hikes, Canadian Utilities is now yielding a very handy and sustainable 3.3%.
However, a company can’t create dividend growth out of nothing. It has to be supported by growing earnings and profitability if it is to continue. Canadian Utilities certainly has that aspect of its business well under control. It continues to invest in expanding its operations and growing its asset base. Between now and 2017, it is investing $5.8 billion in regulated utility and commercially secured capital growth projects as well as $700 million in long-term contracted capital that, in part, will assist its ongoing expansion into Mexico’s utilities industry.
So what?
Canadian Utilities is well positioned to continue growing earnings to reward investors with additional dividend hikes, and this makes it a core holding in any dividend-focused portfolio.
