The only thing better than a reliable dividend stock is a reliable dividend stock that has guarantees 6% dividend raises every single year, through good times and bad.
Fortis (TSX:FTS)(NYSE:FTS) is my favourite bond proxy. It has a generous 3.4% dividend yield (4% or more if you buy opportunistically on dips), but more important, the dividend will grow at a mid-double-digit rate indefinitely, like a growing perpetuity with capital gains.
What makes Fortis the perfect component to any TFSA passive income fund?
First, it’s one of the best ways to play defence. Even if you’re still bullish on the long-term outlook for the economy, it always makes sense to own Fortis as an insurance policy that I think is way better than gold.
Unlike gold, which is an unproductive asset, Fortis is a highly regulated utility with a significant presence in the more attractive U.S. market.
When the markets plunge, you can expect Fortis stock to hold up better than most other securities out there. Rest assured, Fortis isn’t a name that you’ll hit the panic button on when the market waters become rough again.
With bond yields as low as they are, Fortis’s dividend is the perfect hideaway from the volatile stock market whose trajectory is being dictated primarily by the tweets of Donald Trump.
It can be tough to invest in times where the decisions of one man can make or break your portfolio. So, it’s vital to ensure you’re paid an excellent, growing dividend to put up with the stomach-churning ups and downs that the markets bring.
Second, Fortis is the epitome of certainty. In an uncertain market like the one we’re in right now, certainty comes at a considerable premium. Fortis is one of the growthier regulated utilities out there.
As a result, the company is able to “promise” 5-6% in annual dividend hikes over the medium term, with a likely renewal of a similar dividend hike schedule at some point down the road.
If you bought Fortis, forgot about it for the next 12 years, your yield based on your cost basis would have doubled given 6% in annual dividend hikes.
Given that such dividend hikes are nearly guaranteed thanks to management’s risk-mitigating abilities, a 3.4% yield would grow to become 6.8% in just over a decade’s time.
That’s remarkable, especially if you’re a decade away from your expected retirement date. So rather than timing the markets with the non-stop rotation into and out of stocks and bonds, stick with Fortis and have your income stream grow while you sleep.
It’ll be far less stressful and, like a fine wine, the longer you keep Fortis stock stored in your TFSA, the better (and the more bountiful) it will become over time.
Stay hungry. Stay Foolish.
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Fool contributor Joey Frenette owns shares of FORTIS INC.