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:
Upwards momentum

Image source: Getty Images

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. 

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.

More on Dividend Stocks

Canada national flag waving in wind on clear day
Dividend Stocks

RRSP Must-Haves: 2 Canadian Stocks to Secure Your Future

The TSX’s dividend pioneer and first Dividend King are must-haves in an RRSP to ensure financial security in retirement.

Read more »

stock research, analyze data
Dividend Stocks

How Much to Invest to Get $500 in Dividends Every Month

TSX dividend stocks such as Enbridge, TD Bank, and Telus, can help you earn $500 in monthly dividend payments.

Read more »

Golden crown on a red velvet background
Dividend Stocks

Dividend Powerhouses: Canadian Stocks to Fuel Your Portfolio

These two top Canadian dividend aristocrats are some of the top stocks on the TSX to buy now and hold…

Read more »

Dial moving from 4G to 5G
Dividend Stocks

This Undervalued Dividend Stock is Worth Buying Right Now

Want an undervalued dividend stock with long-term potential and a juicy yield? Here's an option you may regret not buying…

Read more »

A worker gives a business presentation.
Dividend Stocks

1 Stock I’m Buying Hand Over Fist in July Despite the Market’s Pessimism

This top dividend stock is going through a rough patch, but don't let that count out all the growth we've…

Read more »

person on phone leaning against outside wall with scenic view at airbnb rental property
Dividend Stocks

2 TSX Stocks Poised to Have a Big Summer

Restaurant Brands International (TSX:QSR) stock and another darling that could be too cheap to ignore this summer.

Read more »

HIGH VOLTAGE ELECRICITY TOWERS
Dividend Stocks

Forget Fortis Stock: Buy This Magnificent Utilities Stock Instead

Looking for high dividends and returns? Then I'm sorry, but Fortis (TSX:FTS) stock probably isn't for you.

Read more »

Increasing yield
Dividend Stocks

2 High-Yield (But Slightly Risky) Stocks to Keep Your Eye on

Have these top TSX dividend stocks finally bottomed?

Read more »