The Canadian stock market boasts several high-quality stocks that are favourites among investors as long-term buy-and-hold assets. These assets can withstand periodic weaknesses in the stock market and overcome the impact of volatile surges that create uncertainty for most assets trading on the TSX.
Having significant exposure to defensive stocks in your investment portfolio can go a long way in providing your capital some protection against volatile market environments. Defensive assets like Fortis (TSX:FTS)(NYSE:FTS) stock don’t offer much in terms of capital gains due to the assets’ inherently defensive nature.
However, Fortis is also a Canadian Dividend Aristocrat that can provide you with reliable dividend payouts to pad your account balance with more cash and help you grow your wealth.
We will take a closer look at the dividend stock to help you understand why I consider it to be a top buy-and-hold-forever stock.
Reliable earnings and increasing dividend payouts
The $26.56 billion market capitalization utility holdings company owns and operates 10 utility businesses diversified across Canada, the U.S., and the Caribbean, serving 3.4 million customers. Fortis generates almost its entire revenues through rate-regulated and long-term contracted assets, providing the company with predictable cash flows.
The company can use its predictable cash flows to comfortably fund its shareholder dividends. Unlike most other companies during challenging economic conditions, Fortis can continue generating predictable revenues because its gas and electric utility services are essential to its customers.
It is virtually impossible to consider that its customers will discontinue the services they pay Fortis for as a cost-cutting measure to fund its shareholder dividends comfortably.
The essential nature of its services has allowed Fortis to continue generating steady cash flows for decades. The company can not only provide stable dividends but also continue to comfortably increase its payouts. Fortis stock is a Canadian Dividend Aristocrat with a 47-year dividend growth streak.
Trading for $56.58 per share at writing, the stock offers its shareholders payouts at a juicy 3.57% dividend yield.
Outlook for the next decade
The company has successfully managed to provide its investors with stable and increasing returns over the decades. Fortis is likely to continue doing that for years to come, thanks to its management’s extensive capital projects. The company’s management intends to invest $19.6 billion in capital projects until 2025. The successful execution will see its rate base increase to $40 billion.
While utility companies do not offer much in terms of capital gains, Fortis could likely offer some excitement to its shareholders with its plans to expand its renewable energy segment.
Fortis has provided an essential service to millions of customers for a long time to generate predictable revenues that have allowed it to deliver stellar shareholder returns for decades. Given that the utility holding company is already well underway to prepare for a future that focuses on renewable energy, the company is well-positioned for the future.
Fortis’s management aims to add 2,400 megawatts (MW) of wind and solar power systems to its portfolio and 1,400 MW of energy storage systems by 2035. It means that it could truly retain its position as a forever stock for long-term investors.
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 Adam Othman has no position in any of the stocks mentioned. The Motley Fool recommends FORTIS INC.