Investors are fast approaching the end of the 2010s, and as we usher in a new decade, it’s a good time to evaluate which stocks will be the best to hold in the long term.
In the early spring, I’d discussed some TFSA strategies worth considering for the future. A conservative style may focus on income-generating equities, but in 2019, many of those stocks have done one better for those that are holding them.
The global trade situation remains in flux, and central banks in the developed world made a dovish turn in late 2018 and early 2019 in response to market pressures.
The Bank of Canada has held firm, but there are indications that it’s plotting a southward move for rates in early 2020. This friendly rate environment is just one of the reasons to love the two stocks I will cover today.
The utilities sector has been incredibly consistent for investors over the past decade, and I expect this to continue as the low rate environment is unlikely to change. Let’s dive in.
Hydro One
The top utility in Ontario is Hydro One (TSX: H), which is already a big selling point given that it boasts a monopoly in the country’s most populous province.
Shares have climbed 32% in 2019 as of late afternoon trading on December 11. The company is a relative newcomer to the TSX, having launched its initial public offering in late 2015.
It has struggled due to perceptions of its internal strife, and utilities took a hit in the brief rate tightening period. However, Hydro One is a profit machine that’s well worth trusting into the 2020s.
Hydro One released its third-quarter 2019 results on November 7. Adjusted earnings per share rose to $0.40 compared to $0.38 in the prior year, which was largely due to lower OM&A costs that the company has worked to better in this fiscal year. Ideally, investors want to see earnings growth that can create more separation with payouts going forward.
As for income, Hydro One currently offers a quarterly dividend of $0.2415 per share, which represents a 3.7% yield. The stock is trading at a premium right now as it nears a 52-week high, so value investors may want to exercise patience before jumping in.
Fortis
In late 2018 I’d suggested that investors jump on Fortis (TSX: FTS)(NYSE: FTS) at a discount, especially in a murky economic climate. Shares have climbed 20% in 2019 so far.
Earnings were flat year over year in the third quarter of 2019, but there are promising things on the horizon for the St. John’s-based utility.
You can’t talk about Fortis without looking at its dividend. It has achieved 46 consecutive years of dividend growth. Fortis is on the path to becoming a dividend king, achieving at least 50 straight years of dividend increases.
How will it accomplish this feat? The company has charted a massive five-year capital investment plan of $18.3 billion from 2020 through 2024. Fortis already increased the spending plan by $1 billion compared to the prior year.
Through its investment plan, Fortis aims to increase its rate base from $28 billion in 2019 to $38.4 billion in 2024. This comes out to a five-year compound average growth rate of 6.5%.
Fortis has set out an average annual dividend-growth target of 6% through 2024. The stock currently offers a quarterly dividend of $0.4775 per share, representing a 3.6% yield.
