Investors are constantly searching for top dividend-growth stocks to add to their portfolios.
Fortis owns natural gas distribution and electricity generation assets in the United States, Canada, and the Caribbean.
The company has a long track record of driving growth through a combination of organic projects and strategic acquisitions. Last year Fortis completed the expansion of its Waneta hydroelectric facility in British Columbia, and in 2014 the company spent US$4.5 billion to acquire Arizona-based UNS Energy.
Now, management is swinging for the fence with a US$11.3 billion deal to buy ITC Holdings Corp., the largest independent electricity transmission company in the United States. Once the acquisition closes, Fortis will have about 60% of its assets located in the United States.
The market initially reacted negatively to the ITC deal due to the heavy debt load Fortis would assume as part of the purchase, but an agreement to sell a 20% stake in ITC to a sovereign trust fund calmed the fears and the stock has recovered.
Fortis gets 94% of its revenue from regulated businesses, which means cash flow should be predictable and reliable. This is important for dividend investors who want to know they can count on the distributions.
Fortis recently raised the dividend by nearly 7% and has hiked the payout every year for more than four decades. Management expects to deliver annual dividend growth of at least 6% through 2021.
The current distribution yields 3.9%.
Enbridge is also on the acquisition trail with its recent agreement to purchase Spectra Energy for $37 billion. The deal creates North America’s largest energy infrastructure company with a $74 billion development portfolio.
Some of the projects are long term and still require approvals, but the combined company will have $26 billion in commercially secured near-term developments that should be completed in the next few years.
Investors should see strong dividend growth continue, as Enbridge believes the current projects will generate sufficient additional cash flow to support a 15% dividend hike in 2017 and annual increases of at least 10% through 2024.
The existing payout yields 3.7%.
Is one a better pick?
Both stocks are great long-term holdings for dividend investors and deserve to be in any portfolio.
If you only have the cash to buy one, I would probably go with Enbridge as the first choice today, given its better dividend-growth prospects over the medium term.