Investors who prefer to manage their own portfolios have to spend a significant amount of time doing research and watching the markets. Many people enjoy the process, and it certainly feels good when the picks turn out to be winners.
For those who don’t have the time or desire to do so much homework but still like the idea of being self-directed, there are some time-tested dividend-growth stocks out there that have proven to be reliable picks for hands-off investors.
Fortis is a natural gas distribution and electricity generation company with assets in Canada, the United States, and the Caribbean.
The company has grown significantly in recent years and is about to get much bigger.
In 2014 Fortis spent US$4.5 billion to acquire Arizona-based UNS Energy. The deal expanded the company’s footprint in the United States and has proven to be a timely move as the subsequent surge in the U.S. dollar has meant a strong boost in revenue.
Fortis is now in the process of spending US$11.3 billion to acquire ITC Holdings Corp., the largest independent pure-play transmission company in the United States.
It’s a big bet, but it’s a solid one, and investors should benefit as a result.
Fortis has raised its dividend every year for more than four decades, and management plans to raise the payout by at least 6% per year through 2020. The quarterly distribution of $0.375 per share yields 3.8%.
The railway industry has few competitors and very high barriers to entry. In fact, the odds of a new rail network being built along CN’s existing routes are pretty much nil.
That’s an attractive situation for investors.
CN is also the only railway that can offer access to three coasts and is regularly cited as the most efficient business in the sector.
The stock has pulled back over the past year as investors worry about the slowdown in the energy sector. CN has a significant energy business, but the company also caters to other parts of the economy, and when one group hits a rough patch, another often picks up the slack.
A balanced revenue stream is one reason profits continue to roll in at a very healthy clip, but there is also a geographic hedge.
The company gets a significant amount of its earnings from the United States. With the plunge in the loonie against its American counterpart, every dollar earned south of the border is now worth more than CAD$1.30. CN is also very good at reducing costs, and that helps improve margins during times of slower economic activity.
Management just raised the dividend by 20%, and investors have enjoyed an average annual dividend-growth rate of 17% for the past 20 years. The company also uses a significant portion of its free cash flow to buy back shares, which is beneficial to long-term owners of the stock.
If you want a name you can simply buy and forget about for decades, CN is a solid pick.