Canadian investors are searching for top dividend-growth stocks to put inside their TFSA accounts.
The move is a popular one for people with a buy-and-hold strategy, as the full value of dividends can be reinvested in new shares.
Why would you do this?
When dividends are used to purchase additional stock, investors harness a powerful compounding process that can turn a modest initial investment into a significant nest egg over time.
Let’s take a look at Fortis Inc. (TSX:FTS)(NYSE:FTS) to see if it is a good candidate for your TFSA.
Fortis owns natural gas distribution, power generation, and electric transmission assets in Canada, the United States, and the Caribbean.
Roughly 96% of the revenue comes from regulated assets, which means cash flow should be predictable and reliable.
That’s good news for dividend investors, and it’s a big reason Fortis is one of Canada’s top dividend stocks. In fact, Fortis has raised its payout every year for more than four decades.
The company has historically grown through a mix of organic projects and strategic acquisitions with a large part of the investments in recent years focused on the United States.
In 2014, Fortis spent US$4.5 billion to buy Arizona-based UNS Energy. The integration of the assets went very well and helped support a 10% dividend increase in the fall of 2015.
Last year, the company acquired ITC Holdings for US$11.3 billion. The market initially thought the deal might be too big for Fortis, and the stock slipped on the news. Since then, investors have become more comfortable, and Fortis has recovered.
Management expects to raise the dividend by at least 6% per year through 2021. Given the strong track record of dividend growth, investors should feel confident with the guidance.
The current distribution provides a yield of 3.6%.
What about returns?
Fortis has made some long-term shareholders quite happy. A $10,000 investment in the stock just 20 years ago would be worth about $202,000 today with the dividends reinvested.
Should you buy?
Fortis continues to deliver strong dividend growth and offers Canadian investors solid exposure to the United States without having to own U.S. stocks.
There are no guarantees the company’s past performance will be repeated over the next two decades, but Fortis remains an attractive buy-and-hold pick for a TFSA portfolio.
