Is it Time to Put Fortis Inc. (TSX:FTS) in Your RRSP?

Fortis Inc. (TSX:FTS)(NYSE:FTS) has a strong track record of dividend growth, and the trend looks set to continue.

| More on:

Canadian savers are searching for ways to set aside adequate funds to support a comfortable retirement.

One part of the retirement-planning strategy involves owning dividend-growth stocks inside a self-directed RRSP and using the distributions to acquire new shares. Over time, the process can turn a relatively small initial investment into a large nest egg.

Contributions to the RRSP also reduce taxable income, giving investors a chance to keep more of their hard-earned money while the purchasing power is strong. These contributions are taxed when removed from the RRSP, but that is likely to be decades down the road when the same dollar buys less, and with a bit of planning, your marginal tax rate should be lower.

Let’s take a look at Fortis Inc. (TSX:FTS)(NYSE:FTS) to see why it might be an interesting pick today.

Growth

Fortis owns natural gas distribution, power generation, and electric transmission businesses in Canada, the Caribbean, and the United States. The company made two major acquisitions in recent years and has a large capital program in place.

The purchase of Arizona-based UNS Energy in 2014 for US$4.5 billion and the US$11.3 billion takeover of Michigan-based ITC Holdings in 2016 have worked out well and altered the business mix to the point where the U.S. is now home to roughly 60% of the company’s assets. This provides a nice way for investors to get solid U.S. exposure through a Canadian company.

In addition, Fortis has a $15.1 billion five-year capital plan that is expected to boost the rate base to $33 billion. Management is also eyeing organic growth, including gas infrastructure opportunities at FortisBC and the ITC Lake Erie Connector Project.

Dividends

Management anticipates revenue and cash flow will grow enough to support annual dividend increases of at least 6% through 2022. Fortis has raised the payout every year for more than four decades, so investors should feel comfortable with the guidance.

At the time of writing, the dividend provides a yield of 4%.

Returns

Buy-and-hold investors have done well with this stock. A $10,000 investment in Fortis just 20 years ago would be worth more than $75,000 today with the dividends reinvested.

Should you buy?

There is no guarantee Fortis will generate the same results over the next two decades, but the company should continue to be a solid dividend pick for self-directed RRSP investors.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Andrew Walker has no position in any stock mentioned.

More on Dividend Stocks

Hand arranging wood block stacking as step stair with arrow up.
Dividend Stocks

1 Growth Stock With Legit Potential to Outperform the Market

Identifying the stocks that have outperformed the market (in the past) is relatively easy, but selecting the ones that will…

Read more »

money cash dividends
Dividend Stocks

Passive Income: The Investment Needed to Yield $1,000 Per Annum

Do you want to generate a juicy passive-income stream? Here's a trio of stocks that can generate a yield of…

Read more »

Shopping card with boxes labelled REITs, ETFs, Bonds, Stocks
Dividend Stocks

Invest $10,000 in This Dividend Stock for $1,500.50 in Passive Income

If you have $10,000 to invest, then you likely want a core asset you can set and forget. Which is…

Read more »

IMAGE OF A NOTEBOOK WITH TFSA WRITTEN ON IT
Dividend Stocks

Here’s the Average TFSA Balance in 2024

The average TFSA balance has steadily risen over the last six years and surpassed $41,510 in 2023. Will the TFSA…

Read more »

potted green plant grows up in arrow shape
Dividend Stocks

TFSA Set and Forget: 2 Dividend-Growth Superstars for the Long Run

I'd look to buy and forget CN Rail (TSX:CNR) and another Canadian dividend-growth sensation for decades at a time.

Read more »

Caution, careful
Dividend Stocks

Here’s Why I Wouldn’t Touch This TSX Stock With a 50-Foot Pole

This TSX stock has seen shares rise higher, with demand for oil increasing, and yet the company could be in…

Read more »

Payday ringed on a calendar
Dividend Stocks

1 Passive-Income Stream and 1 Dividend Stock for $781.48 in Monthly Cash

Looking for passive income? Don't take out a loan with that high interest involved. Instead, consider this method for years…

Read more »

money cash dividends
Dividend Stocks

Pizza Stocks Are Actually Great for Passive Income: Who Knew?!

Pizza Pizza Royalty (TSX:PZA) may very well be the best inflation-fighting food stock out there on the TSX.

Read more »