It’s again the time of the year when investors look back and try to understand which of their investing strategies work and which ones have failed. For dividend stocks, 2018 has not been a good year.
The biggest drag on their share prices was climbing bond yields. Dividend stocks underperform in the market when rates go up as investors cut their risk and move to safer assets, such as government bonds.
In this weak environment for dividend stocks, there are still some winners that have been able to beat the market and performed much better than their peers.
During this period, it’s almost unchanged when other utility stocks, such as Enbridge Inc. and Emera Inc., came under increasing pressure. The benchmark S&P/TSX Composite Index was down more than 6% at the time of writing.
Fortis is one the 15 largest utilities in North America, with over $49 billion in assets. The utility has well-diversified asset base, operating in the U.S., Canada and the Caribbean.
Fortis provides electricity and gas to 3.2 million customers. The U.S. accounts for more than 60% of its assets, while Canada has more than 25%, and the rest are in the Caribbean.
Fortis’ growth propelled after its 2016 acquisition of ITC Holdings Corp. in US$11.3 billion deal. The deal not only allowed Fortis to expand to several new U.S. state markets, but also helped the utility to expand its network of transmission lines.
Going forward, the utility is pursuing a $14.5 billion capital-spending plan for the next five years. That plan is composed mostly of a diversified mix of low-risk projects and is fully funded through debt raised at the utilities, cash from operations, and common equity from the company’s dividend-reinvestment plan.
Due to steady growth in its earnings, Fortis’ annual dividend has increased for 44 consecutive years. The company, which currently yields 4%, aims to continue raising its dividend at an average annual rate of about 6% through 2023.
Trading at $45.39 at the time of writing, Fortis stock is trading close to the 52-week high of $48.73. From the capital gains perspective, the stock is unlikely to climb too high from here, as interest rates are forecast to climb in the region. But if you’re a long-term buy-and-hold investor, including Fortis stock in your portfolio makes sense, especially when the company plans to hike dividend and has enough cash to pursue that strategy.