The TFSA is a very valuable tool in our arsenal to help us prepare for retirement and accumulate wealth. This year, the maximum contribution allowance is $6,000, and the total cumulative contribution room is $63,500. This accumulation has brought the TFSA account into greater and greater significance, as the tax savings continue to accumulate and compound.
So, what investments are best suited for your TFSA? Dividend stocks and dividend-growth stocks top the list. Meet Fortis (TSX:FTS)(NYSE:FTS), a $24 billion electric and gas utility holding company that is a safe dividend-growth stock to buy and hold in your TFSA for reasons that were highlighted once again with the company’s latest quarterly results.
Continued dividend growth backs up a strong investment case
With the release of third-quarter results, Fortis management increased its annual dividend by 6.1% to $1.91 per share. This marks the 46th consecutive year of increases, and it highlights the fact that Fortis continues to be a dividend-growth stock. The current dividend yield is 3.6%, which is tax free if you hold it within your TFSA. The payout ratio is approximately 60%, meaning that the dividend is pretty well covered.
Going forward, we can expect a 6% dividend-growth rate through to 2024, and this quarter’s result highlights why we can believe in the dividend and depend on it for years to come.
Fortis stock: safety of principle
Fortis has 10 regulated utility operations throughout North America, including FortisBC Electric, FortisAlberta, and FortisBC Energy. This investment grade company has $52 billion in assets serving customers in Canada, the U.S., and the Caribbean, making it a North American leader in the regulated gas and electric utility industry.
Earnings from regulated utilities increased 3.9% in the third quarter — a pretty steady increase. The fact that 94% of its earnings currently come from regulated utilities and 99% currently comes from regulated utilities and long-term contracted utility infrastructure means that we can count on predictability and safety of your TFSA principle.
Fortis capital plan is focused on cleaner energy and electrification and provides upside
Fortis reaffirmed its 2020-2024 $18.3 billion capital plan, with 99% of its capital spending to go toward the regulated businesses, and 80% of its spending to go toward smaller projects. These are both lower-risk areas to direct the spending to, and it is expected to increase the rate base from $28 billion in 2019 to $34.5 billion in 2022 and $38.4 billion in 2024.
So, the company is targeting organic growth as opposed to growth through acquisitions. Also, the funding of this growth will come mostly through cash flow from operations, without going to the debt or equity markets. This reduces the risk for the company and its shareholders. Although, in this low interest rate environment, this capital program is manageable, even if debt levels need to go a little higher.
FortisBC is the owner of the only two LNG facilities in British Columbia. The company’s focused investment into cleaner energy provides exciting growth for Fortis, and if, for example, BC’s LNG investments continue to grow and the industry does, in fact, take off, the company is extremely well positioned.
Foolish bottom line
Today, Fortis stock remains one of the most secure and stable dividend-growth stocks to add to your TFSA. Dividend growth can be expected to continue at Fortis, and the company is increasingly well positioned as the clean, renewable energy industry continues to grow.
