Fortis Inc. (TSX:FTS)(NYSE:FTS) is one of several great long-term income investments that are worth including in your portfolio. Fortis presents an often-overlooked investment opportunity that should be on nearly every investor’s shopping list.
To better understand why utilities are often overlooked, let’s talk a bit about the typical business model for a utility such as Fortis.
The simple, yet lucrative business model
Utilities provide an essential service to the communities that they serve, charging rates that are for the most part regulated through long-term contracts, which in turn provides a steady and recurring source of revenue. In the case of Fortis, 92% of earnings come from regulated utilities.
That recurring source of revenue also helps utilities offer an attractive dividend to investors, leading to the great buy-and-forget status that many utilities share.
While this may seem like reason enough for the more risk-averse to contemplate investing, many investors do cite the perceived lack of growth as a reason to pass on an investment.
Fortis is a different type of utility
One of the first things that investors should realize with respect to Fortis is that the company is anything but typical. Fortis has an aggressive approach to expansion that has resulted in several masterstroke acquisitions over the past few years.
The most recent acquisition of note was also the company’s largest. The $11.3 billion acquisition of ITC Holdings completed in late 2016 propelled Fortis into an advantageous position as one of the top 15 largest utilities on the continent.
The ITC acquisition also exposed Fortis to several new U.S state markets the company didn’t operate in prior to the acquisition, which will continue to fuel annual growth at a respectable pace over the next few years.
That same strategy applied to prior acquisitions by Fortis as well. Back in 2013, Fortis acquired UNS Energy Corp. for $2.5 billion; one year later Fortis purchased CH Energy Group for $1.5 billion.
In terms of a dividend, Fortis handsomely rewards investors with a quarterly dividend that provides a yield of 4.01%. More impressive than the yield is the fact that Fortis has an established record of hiking that dividend annually that dates back over four decades, and management is committed to 6% increases through 2022. This factor alone makes the company a great buy-and-forget candidate for nearly any portfolio.
Why you should buy Fortis now more than ever before
Fortis has a stable, secure stream of revenue fueled by an aggressive expansion policy that rewards shareholders with a generous dividend. What more could investors want?
How about a great buying opportunity?
The market correction witnessed last month left Fortis and other several great stocks trading at sale prices. This made for an incredible buying opportunity for investors looking to buy into a great long-term holding that still exists today.
Year-to-date, Fortis is down 8%, but still averaged at least 5% or better annually during the past decade.
In my opinion, Fortis remains a great long-term investment that should appease both the income-seeking and growth-minded investor in any type of market.