Canadians can quickly build a diversified portfolio with the many stock choices on the Toronto Stock Exchange (TSX). Dividend investing is also a widely used strategy to create consistent passive income or build wealth over time.
Some discerning investors, however, have a different approach to the strategy. The focus is not so much on high-yield stocks but companies with strong dividend growth potentials.
Two birds with one stone
ATCO (TSX: ACO.X) is one of the few TSX stocks offering decent and safe dividends. But the attractive feature is its outstanding record of raising dividends for 25 years. The current yield of 3.26% of this $5.77 billion diversified utility company should be growing for years to come.
If there’s a success story in Great Western Canada, ATCO is it. The company started a major uptrend in mid-2009 and has been gaining strength ever since.
The company operates through Canadian Utilities, where it has a 42% ownership stake. ATCO engages in the electricity, pipeline and liquid, and retail energy businesses, serving users in more than 100 countries. As the activities are mostly regulated, you have a safe place to park your money.
The second striking feature of ATCO is the diversity of its business segments. Its Canadian Utilities segment is the provider of various electricity services such as electricity generation, distribution, transmission, and related infrastructure solutions.
The pipelines and liquid services, including integrated natural gas transmission, distribution, and storage, among others, fall under this segment too.
Two other contributors to ATCO’s profitable business are the Structures & Logistics and Corporate & Other segments. The former offers modular facilities, site support services, and logistics and operations management services. The latter offers commercial real estate services.
ATCO’s network of gas pipelines is impressive and extensive. These pipelines traverse 64,500 kilometers, while the electrical power lines extend to a length of over 87,000 kilometers.
Investment thesis
After over 70 years of operation, ATCO is now a one-stop global provider of integrated energy, housing, transportation, and infrastructure solutions. The innovative and sustainable solutions it provides in these critical sectors are all essential for economic growth and prosperity.
Maintaining a strong management team throughout its corporate existence is the principal reason for the company’s dominating presence around the globe.
Also, there are five compelling reasons to invest in ATCO: innovation, growth, financial stability, operational excellence, and collaborative community approach.
ATCO’s net income grew by 61.5% to $328 million in 2018 and should be on track to report a 72.2% increase in 2019. Based on analysts’ estimates, it could potentially gain by 11.8% within a year.
Safety net
Some companies offer high dividends to keep investors happy, but the yields are not sustainable. The call of the times is to avoid dividend traps and have a safety net given the global uncertainties. You might not be able to rebalance your portfolio promptly should a market crash occur.
With ATCO, there is less worry during economic downturns. The dividends are safe while the payouts are stable. This utility stock can protect your capital and add stability to your investment portfolio.
