Passive Income Investors: Is This Canada’s Highest Quality Dividend?

Fortis Inc. (TSX:FTS)(NYSE:FTS) is a stock that passive-income investors should have as a core holding. Here’s why the dividend is incredible.

| More on:

It’s volatile times like these, when a trade war could put us on the brink of recession, that investors begin to value the quality of dividends over quantity. That’s a huge reason why utility stocks have been one of the top-performing asset classes year to date and why they could be headed much higher as the trade war continues to worsen for both sides, potentially inspiring a couple of rate cuts.

While the title of Canada’s highest quality dividend is up for debate, I find it challenging to find a candidate that has one that’s as robust as the dividend of Fortis (TSX:FTS)(NYSE:FTS).

Yes, Fortis is a boring utility stock that your grandparents probably own at the core of their retirement portfolios. But that doesn’t mean the company and its dividend aren’t worthy of a younger investor’s “more exciting” portfolio of growthier stocks.

In fact, Fortis may be a superior builder of wealth over the long term than many riskier bets that have higher odds of posting huge gains over short periods of time.

At the time of writing, Fortis sports a mere 3.5% dividend yield, which is dwarfed by many stocks within the universe of high-yielders. When you select stocks to own for decades at a time, though, it’s not just the size of the yield that counts. It’s the dividend’s sustainability, growth potential, and degree of predictability. With Fortis, you’re arguably getting the perfect blend of all these categories.

Fortis’ dividend is not only well covered by cash flows from operation, but the highly regulated nature of the company’s cash flow streams allows for greater financial flexibility to pursue opportunistic growth projects as they come along while committing to raise the dividend by a mid-single-digit amount per year.

Fortis’s 6% dividend growth guidance is the closest thing to a guaranteed raise that you’ll ever come across in the equity markets. Not just because of Fortis’s has a track record of paying dividends for over 40 years, but also because Fortis has an unmatched foundation in its regulated operations together with an above-average pipeline of highly predictable growth projects.

Further, Fortis’s expedition in the U.S. market will continue to be a boon on growth, as the U.S. is the place to be for growthier utilities that don’t want to have to deal with those numerous Canadian regulatory hurdles. Through ITC Holdings, Fortis has a sizeable U.S. presence that’ll likely propel ROE numbers over the years ahead.

To add even more wind to the back of Fortis, the U.S. and Canada may be ready to slash interest rates to make up for anticipated economic weakness. If this ends up happening, Fortis’s borrowing costs will lower marginally and shareholders will prosper as a result.

Moreover, the continued weakness of the Canadian dollar relative to the greenback is another plus for Fortis over its domestic peers thanks to its U.S. presence.

Foolish takeaway on Fortis

Fortis is boring, but boring is beautiful, especially with those choppy market moves that we’ve grown accustomed to over the past year. The dividend is not only bountiful at 3.5%, but it’s also ripe for above-average growth over time, and it’ll remain intact even if Trump’s trade war were to send the global economy into a tailspin.

That’s a kind of dividend that money can’t buy. Well, actually it can, and although you’ll have to a pay a premium price tag, given the potential tailwinds, I think the premium isn’t at large as it ought to be!

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

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 »

Investor reading the newspaper
Dividend Stocks

Emerging Investment Trends to Watch for in 2025

Canadians must watch out for and be guided by emerging investment trends to ensure financial success in 2025.

Read more »