In late 2019, I’d discussed several dividend aristocrats for retirees. At the time, I’d explained that the TSX and the S&P 500 in the United States have different qualifiers for what constitutes a dividend aristocrat. However, dividend stocks in the next echelon are often referred to as dividend kings. Today, I want to look at two TSX-listed stocks that are knocking on the door to meet this requirement.
What is a dividend king?
A dividend king is a stock that has achieved at least 50 consecutive years of dividend growth. It is a tremendous feat for a company to have accomplished annual dividend increases for at least half a century. Typically, dividend kings are sought after for their reliability and consistency. Right now, the TSX does not have a stock that meets the criteria. However, there are two utility stocks that are knocking on the door.
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Why Fortis will almost certainly be crowned this decade
In November 2019, I’d discussed why Fortis (TSX:FTS)(NYSE:FTS) was one dividend stock that was worth holding for decades. Fortis is a St. John’s-based utility holding company. Its shares have increased 7% year over year as of close on July 28.
Fortis released its first-quarter 2020 results on May 6. The company turned in a solid Q1 2020 in the face of the destructive COVID-19 pandemic. More encouraging, Fortis reaffirmed its five-year $18.8 billion capital plan. This capital plan is expected to boost its rate base to $38.4 billion by 2024. Moreover, it expects this to support annual dividend growth of 6% through the end of this projected period. This would vault Fortis into the position of a dividend king.
Right now, the stock offers a quarterly dividend of $0.4775 per share. This represents a 3.5% yield. Fortis is a future dividend king that is worth holding forever.
One oft-forgotten contender for a crown
Canadian Utilities (TSX:CU) is engaged in the utilities and energy sectors. Its shares have dropped 10% in 2020 so far. The company does not receive the same attention as some of its peers, but it has delivered dividend growth since 1972. With a few more years of dividend increases, Canadian Utilities will be crowned a dividend king.
In Q1 2020, the company reported adjusted earnings of $179 million compared to $200 million in the prior year. This was largely due to the sale of its fossil fuel-based electricity generation portfolio in Q3 2019 as well as the sale of Alberta PowerLine in Q4 2019. Canadian Utilities has achieved solid earnings growth in recent quarters, and it still boasts a strong balance sheet.
Better yet, Canadian Utilities stock last possessed a price-to-earnings ratio of 11 and a price-to-book value of 1.7. This puts the dividend stock in attractive value territory. Canadian Utilities last announced a quarterly dividend of $0.4354 per share, representing a strong 5.1% yield.
Fortis and Canadian Utilities are two dependable income-yielding equities that are set to become dividend kings this decade. Both also offer nice value in late July.
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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 Ambrose O'Callaghan owns shares of FORTIS INC. The Motley Fool recommends FORTIS INC.