1 of My Favourite Income Stocks Is on Sale Today

The sell-off in shares of Fortis Inc. (TSX:FTS)(NYSE:FTS) presents an incredibly attractive entry point for long-term income investors.

| More on:

When it comes to stability and dividend reliability, it’s hard to do better than Fortis Inc. (TSX:FTS)(NYSE:FTS), with its highly regulated operations and above-average earnings growth profile — a profile that enables the company to raise its dividend year after year, leaving very little room for surprises.

Conservative income investors don’t like surprises, which is why Fortis is worthy of a premium multiple, even in an environment where its dividend is deemed less attractive in the eyes of the public. Despite the excessive negativity surrounding the stock, Fortis is still poised to grow its dividend by ~6% per year through 2022 regardless of the broader market.

So, if you have any doubts about the health of this nearly 10-year-old bull market, Fortis is a premium name that you should strongly consider picking up. And right now, you don’t have to pay a premium price. In fact, the stock is the cheapest it’s been in recent memory, even when you consider the negative effect of a higher interest rate environment, which I believe have already been fully baked (and then some) into shares.

Fears of higher rates have produced a long-term buying opportunity for “safe” investors

It’s hardly a mystery that the utilities have been out of favour recently.

A higher interest rate environment is a long-term headwind for utility stocks and their above-average dividends are seen as a safe haven by many simply aren’t as attractive as they were when interest rates were hovering near rock-bottom lows. While fears over higher rates may linger for longer, it’s important to remember that with Fortis, you’re still getting a defensive powerhouse with predictable single-digit earnings growth numbers. In addition, the company has the ability hold its own like few other stocks on the TSX when the bear finally comes out of hibernation.

For conservative income investors, the predictable magnitude of dividend growth over the foreseeable future is still very attractive in a higher rate environment. Management continues to impress on the growth front, with many promising opportunities in Canada and the U.S. that will allow the company to continue to support frequent dividend hikes not only through 2022, but likely for decades to come. At this point, it seems like nothing can derail Fortis’ annual dividend hike streak.

Bottom line

At the time of writing, Fortis stock is down nearly 15% from its high with a 4.13% yield.

I think the sell-off over the fears of rising rates is overdone. If you’re a retiree who’s looking for stability and income, you should realize that there’s nothing fundamentally wrong with the business. The expectations of the average investor have just changed, and at today’s prices, you’re getting an attractive entry point with what I believe is a relative margin of safety.

Stay hungry. Stay Foolish.

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 Joey Frenette owns shares of FORTIS INC.

More on Dividend Stocks

worry concern
Dividend Stocks

Worried About a Recession? 2 Canadian Blue-Chip Stocks to Buy and Hold for Dear Life

A recession is worrisome. Buying two blue-chip TSX stocks and holding them for the long term will deliver stable, less…

Read more »

money cash dividends
Dividend Stocks

TFSA: 3 of the Best Canadian Dividend Stocks to Buy This Year

Are you looking for some of the best Canadian Dividend stocks to buy this year? Here are three great options…

Read more »

Man data analyze
Dividend Stocks

2 Recession-Tough Stocks to Buy in February 2023

TSX stocks, such as Jamieson Wellness, are trading at compelling valuations and might deliver stellar gains to investors.

Read more »

A worker overlooks an oil refinery plant.
Dividend Stocks

Defensive Investors: 3 Stocks to Shore Up Your Portfolio

Fortis is a defensive stock with an impressive track record.

Read more »

edit Woman calculating figures next to a laptop
Dividend Stocks

Passive Income: 2 Cheap Stocks to Buy and Never Sell

Buying dividend stocks cheap and discounted is a strategy many value investors pursue to maximize the return potential.

Read more »

Female friends enjoying their dessert together at a mall
Dividend Stocks

Dividend Stocks: Will Debt Load Put a Damper on This Top Stock in 2023?

This dividend stock has a very solid track record of revenue and cash flow growth, ,as well as dividend growth,…

Read more »

A plant grows from coins.
Dividend Stocks

How to Invest in One of the Most Important Commodities in the World (It’s Not Gold)

Many things we take for granted may offer economic value and a powerful investment opportunity beyond commodities like gold or…

Read more »

growing plant shoots on stacked coins
Dividend Stocks

Need Passive Income? Turn $15,000 Into $1,016 Annually With These 2 Dividend Stocks

Canadian investors with limited capital can create passive-income streams from two high-yield dividend stocks.

Read more »