The current bull market is one of the longest in history, and while the good times could continue to roll along for several years, investors should prepare themselves for the next pullback.
Trade wars, a bursting debt bubble in China, or an ugly Brexit result could trigger the next market downturn. Given the extent of the rally since the Great Recession, it is reasonable to expect that the next dip could be significant.
This is why it’s important to ensure the portfolio holds top-quality companies that are leaders in their sectors and operate businesses that can take advantage of opportunities and emerge even stronger after a market correction.
Fortis operates regulated utility businesses, including power generation and transmission assets, as well as natural gas distribution operations.
The company has grown from its humble beginnings as a small power provider in eastern Canada to become a leading utility in Canada and the United States with $49 billion in assets and more than three million customers. As a result of large acquisitions made in recent years, the majority of the revenue now comes from the U.S.
Fortis has a five-year capital program in place that will see the company spend more than $15 billion. The end result is an expansion of the rate base to $33 billion, representing a five-year compound annual growth rate of about 5.4%. In addition, Fortis is evaluating several organic development opportunities across its businesses, including renewable energy investments in Arizona, gas infrastructure expansion in British Columbia, and the ITC Lake Erie Connector Project, which is a 1,000 MW underwater transmission line.
The company anticipates cash flow growth will support dividend increases in the neighbourhood of 6% per year through 2022. Fortis has raised the amount it pays investors every year since the early 1970s, so investors should be comfortable with the outlook regardless of what might happen in the broader stock market.
At the time of writing, investors can pick up a yield of 4%.
The bottom line
We don’t know when the next major stock market correction will occur, but it will happen. Fortis is a good company to own in preparation for this event. Electricity and natural gas are essential to keep homes and businesses running, so the revenue stream is relatively shock proof, and Fortis tends to hold up reasonably well when stock markets hit a rough patch.
If you’re looking for a top dividend pick, Fortis should be a solid buy-and-hold bet today.
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.