1 Top Dividend Stock to Buy When the Economy Is Slowing

Fortis Inc. (TSX:FTS)(NYSE:FTS) is one of the top dividend stocks that perform better in a slowing economy.

| More on:

You’re reading a free article with opinions that may differ from The Motley Fool’s premium investing services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

What stocks are best positioned to beat the market when the pressures on the economy are building up and the central bank is more likely to cut interest rates?

This is quite a common dilemma faced by many retail investors when the economy starts showing signs of weakness. In the latest report on the GDP growth, Statistics Canada said the nation’s economy shrank in February.

In Canada, investors have turned positive about the nation’s largest gas and electric utility stocks after the central bank hinted this year that it may not hike its interest rates in 2019 after five increases amid signs that the economy is slowing fast. When rates fall, bond-like utility stocks outperform due to their fixed rate of return.

In the utility space, Fortis Inc. (TSX:FTS)(NYSE:FTS) is one of the best-performing stocks. Let’s take a deeper look at the company’s business and the reasons that make its stock a top buy.

Diversified assets

St. John’s-based Fortis has a diversified asset base, providing electricity and gas to 3.2 million customers in the U.S., Canada, and the Caribbean countries. Its U.S. operations account for about 60% of its regulated earnings, while the rest comes from its Canadian and Caribbean operations.

What makes Fortis a great defensive stock is the company’s robust capital spending program and the projected dividend growth of 6% per year. Last year, Fortis’ net earnings rose to US$1.1 billion from US$963 million reported in 2017.

With more than $17-billion worth of projects in the pipeline, there is a good possibility that Fortis will continue to show strong earnings, especially when interest rates remain favorable to fund that growth.

Growing dividends

If you’re buying Fortis stock for income growth, it’s one of the best stocks among the Canadian utilities. With a 3.64% dividend yield and about 6% expected growth in its annual dividend payouts through 2023, Fortis holds strong appeal for income investors.

Between 2006 and 2019, Fortis’ annual distribution increased from $0.67 to $1.80 a share, a very impressive track record of rewarding investors.

During the past one year, Fortis’ stock has been a great performer, delivering more than double the return that the S&P/TSX Composite Index has produced. If interest rates decline going forward, it will further strengthen the case for utility stocks.

RBC Dominion Securities analyst Robert Kwan has recently raised his price target for Fortis, highlighting the reasons we discussed earlier. He raised his 12-month price target to $53 from $50, which equates to a forward price-to-earnings multiple of 19 times 2020 estimates.

Bottom line

Trading around $49.31 a share at the time of writing, Fortis stock has gained more than 14% during the past one year, trading close to the analysts’ 12-month price target. However, the company has a good pipeline of growth projects that will fuel further expansion in its earnings and payouts. 

Should you invest $1,000 in Fortis right now?

Before you buy stock in Fortis, consider this:

The Motley Fool Stock Advisor Canada analyst team just identified what they believe are the Top Stocks for 2025 and Beyond for investors to buy now… and Fortis wasn’t one of them. The Top Stocks that made the cut could potentially produce monster returns in the coming years.

Consider MercadoLibre, which we first recommended on January 8, 2014 ... if you invested $1,000 in the “eBay of Latin America” at the time of our recommendation, you’d have $19,624.59!*

Stock Advisor Canada provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month – one from Canada and one from the U.S. The Stock Advisor Canada service has outperformed the return of S&P/TSX Composite Index by 34 percentage points since 2013*.

See the Top Stocks * Returns as of 11/20/24

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 Haris Anwar has no positions in the stocks mentioned in this report.

If You Thought Apple and Microsoft Were Big, You Need to Read This.

The steel industry produced the world's first $1 billion company in 1901, and it wasn't until 117 years later that technology giant Apple became the first-ever company to reach a $1 trillion valuation.

But what if I told you artificial intelligence (AI) is about to accelerate the pace of value creation? AI has the potential to produce several trillion-dollar companies in the future, and The Motley Fool is watching one very closely right now.

Don't fumble this potential wealth-building opportunity by navigating it alone. The Motley Fool has a proven track record of picking revolutionary growth stocks early, from Netflix to Amazon, so become a premium member today.

See the 'AI Supercycle' Stock

More on Dividend Stocks

money goes up and down in balance
Dividend Stocks

This 6% Dividend Stock Is My Top Pick for Immediate Income

This Canadian stock has resilient business model, solid dividend payment and growth history, and a well-protected yield of over 6%.

Read more »

ways to boost income
Dividend Stocks

1 Excellent TSX Dividend Stock, Down 25%, to Buy and Hold for the Long Term

Down 25% from all-time highs, Tourmaline Oil is a TSX dividend stock that offers you a tasty yield of 5%…

Read more »

Start line on the highway
Dividend Stocks

1 Incredibly Cheap Canadian Dividend-Growth Stock to Buy Now and Hold for Decades

CN Rail (TSX:CNR) stock is incredibly cheap, but should investors join insiders by buying the dip?

Read more »

bulb idea thinking
Dividend Stocks

Down 13%, This Magnificent Dividend Stock Is a Screaming Buy

Sometimes, a moderately discounted, safe dividend stock is better than heavily discounted stock, offering an unsustainably high yield.

Read more »

Canadian Dollars bills
Dividend Stocks

Invest $15,000 in This Dividend Stock, Create $5,710.08 in Passive Income

This dividend stock is the perfect option if you're an investor looking for growth, as well as passive income through…

Read more »

A Canada Pension Plan Statement of Contributions with a 100 dollar banknote and dollar coins.
Dividend Stocks

3 Compelling Reasons to Delay Taking CPP Benefits Until Age 70

You don't need to take CPP early if you are receiving large dividend payments from Fortis Inc (TSX:FTS) stock.

Read more »

A worker overlooks an oil refinery plant.
Dividend Stocks

Better Dividend Stock: TC Energy vs. Enbridge

TC Energy and Enbridge have enjoyed big rallies in 2024. Is one stock still cheap?

Read more »

Concept of multiple streams of income
Dividend Stocks

Got $10,000? Buy This Dividend Stock for $4,992.40 in Total Passive Income

Want almost $5,000 in annual passive income? Then you need a company bound for even more growth, with a dividend…

Read more »