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4 Reasons Every Portfolio Needs a Utility Stock

Selecting the right mix of investments can often be an overwhelming process for investors that strive to create a diversified portfolio that balances income and growth as well as consider the estimated timeline for investment.

Fortunately, several investments on the market are perfect fits for nearly every portfolio, and Fortis Inc. (TSX:FTS)(NYSE:FTS) is one of them.

Here are a few reasons you may want to consider Fortis for your portfolio.

A safe business model

Utilities are intriguing investments that are often misunderstood by investors. The business model can be summed up as providing the necessary services to communities they serve for a fixed price and duration. That duration can span multiple decades, leading to the often-cited stereotype of utilities being a boring investment.

More importantly, that contract provides a steady stream of income that fuels a handsome dividend and provides an avenue for significant growth over time that is hardly fitting of a boring investment label.

Watching Bitcoin drop over 30% this week drives home the need for a stable investment, and Fortis fits this definition perfectly.

Strong growth option

Unlike most utilities, Fortis has a history of strong growth, owing in part to the aggressive growth strategy the company has adopted over the years that has centred on acquiring smaller companies operating in neighbouring markets or in the same market, but that operate in a complementary segment.

The acquisition of ITC Holdings is a prime example of this. The 2016 acquisition was a behemoth of a deal that came in at US$11.3 billion that catapulted Fortis into being one of the 15 largest utilities on the continent. The deal also gave Fortis entry into several U.S. states markets the company did not previously serve and provided Fortis with a sizeable power distribution network, further expanding its reach.

Four decades of dividend growth

One thing I like to look for in an income stock is an established history of paying and increasing dividends. Fortis offers investors an appetizing 3.68% yield through a quarterly dividend that has an impressive history of consecutive growth that spans more than four decades.

That level of commitment is not only impressive, but it shows the underlying strength of Fortis’s often mislabeled business model. The impressive growth and payout history of the dividend also puts Fortis into a category of buy-and-forget investments that investors with long-term objectives may want.

Strong results

The stable stream of revenue and strong growth are evident in Fortis’s results.

In the most recent quarter, Fortis continued a trend of providing strong results, with net earnings attributable to common equity shareholders coming in at $278 million, or $0.66 per share, bettering the $127 million, or $0.45 per share, reported in the same period last year. Much of this increase was attributed to earnings associated with both the ITC and Waneta dam acquisitions.

Looking beyond the current quarter, Fortis remains a strong investment opportunity for those investors looking to diversify their portfolios with a utility investment. Fortis expects the ITC deal to continue to provide strong growth to the bottom line, which should keep Fortis on track to continue raising its already impressive dividend.

In my opinion, Fortis is an excellent investment for long-term investors looking for an income-generating stock.

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Fool contributor Demetris Afxentiou has no position in any stocks mentioned.

 

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