1 of My Favourite TSX Stocks for Your Retirement Portfolio

TSX stocks: Stable returns from a slow-moving stock will be better off than a growth stock rallying just for a few months or years.

| More on:
Path to retirement

Image source: Getty Images

Investing is more like a marathon than a sprint. Stable returns from a slow-moving stock for a longer period will be better off than a growth stock rallying just for a few months or years. Also, large stock price swings for the sake of higher returns in the latter case will probably cost you a sound sleep. So, here is one of my favourite TSX stocks that fits the former criterion.

Stable TSX stock for your retirement portfolio

Stock markets do not like uncertainties. Whenever there are ambiguities, be it geopolitical tensions or reopening fears, investors dump risky assets like stocks and turn to safe havens. However, some sectors within the market remain comparatively safe, even during these uncertainties. Yes, I’m talking about the utility sector.

Consider Canada’s top utility stock Fortis (TSX:FTS)(NYSE:FTS). Utilities are called “widow-and-orphan” stocks because of their slow stock movements and consistently rising dividend payments. However, stocks like FTS have created decent wealth for shareholders over the years. FTS delivered an average annual total return of almost 10% in the last decade and 14% since 2001, beating the TSX Composite Index by a large margin.

Fortis: A top Canadian utility stock for patient investors

Fortis caters to more than 3.4 million customers and operates in Canada, the U.S., and the Caribbean. It earns almost entire of its net income from rate-regulated operations. This facilitates cash flow predictability and allows management to distribute dividends to shareholders.

Fortis stock pays a decent dividend yield of 3.5% at the moment. Apart from the yield, its long dividend-growth streak of 47 consecutive years indicates reliability and stability. Utilities pay out a large portion of their net earnings as dividends to shareholders. Fortis gave away almost 67% of its earnings in the form of dividends last year.

Interestingly, Fortis can continue this outperformance in the coming decades as well. It plans to invest almost $20 billion through 2025. This will expand its rate base along with its customer base. In addition, recessions dent the earnings of many businesses, but utilities remain largely immune to economic downturns, because you are not going to stop using electricity during recessions! So, utility companies like Fortis keep earnings a stable rate of return on their operations irrespective of the economic scenario. And that’s why Fortis forecast a dividend increase of 5-7% per year through 2025.

Interest rates versus utility stocks

Rising interest rates are generally considered detrimental to utilities. However, I think rates could remain at these record-low levels for some time before they start rising gradually. Their premium yield still indicates a handsome spread compared to interest rates, say, three years down the line.

Notably, utility stocks outperformed growth stocks during the pandemic-led crash last year. When broad market indices tumbled by almost 35% in March 2020 amid global lockdown fears, utility stocks at large stood relatively strong and fell only 18%. That’s because investors turned to dividend-payer utility stocks, and lower volatility was the need of the hour then.

Bottom line

Utility stocks like Fortis might underperform growth stocks in the short term, but they create robust wealth for the patient, discerned investors over a longer time frame. It’s not prudent to invest all your portfolio in risky, growth stocks. Some portion of your portfolio should go to these defensives, which will create a stable passive-income stream for life.

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.

The Motley Fool recommends FORTIS INC. Fool contributor Vineet Kulkarni has no position in any of the stocks mentioned

More on Dividend Stocks

Woman has an idea
Dividend Stocks

3 No-Brainer Best Dividend Stocks in Canada to Buy With $500 Right Now

Are you craving more cash flow? $500 in one of these best dividend stocks in Canada might deliver a slice…

Read more »

Canadian energy stocks are rising with oil prices
Dividend Stocks

5 Stocks Whose Dividends Just Keep Growing

Stocks like Enbridge and Fortis are growing their dividends for decades, and returning higher cash to their shareholders.

Read more »

Dividend Stocks

2 Stocks I’m Loading Up On in 2024

Restaurant Brands International (TSX:QSR) and another stock I'm pretty close to buying right here, right now.

Read more »

protect, safe, trust
Dividend Stocks

RRSP Investors: 2 Superior Dividend Stocks for Optimal Returns

Superior dividend stocks like the Canadian National Railway (TSX:CNR) can add income power to your portfolio.

Read more »

Increasing yield
Dividend Stocks

TFSA Passive Income: 2 High-Yield Stocks to Buy Before They Bounce

These top TSX dividend-growth stocks look cheap today and offer high yields.

Read more »

Portrait of woman having fun in the street.
Dividend Stocks

Why I Can’t Stop Buying Shares of This Magnificent High-Yield Dividend Stock in My TFSA

This dividend stock continues to be a top winner, even with returns falling the last few years. We're nearing some…

Read more »

Businessman holding tablet and showing a growing virtual hologram of statistics, graph and chart with arrow up on dark background. Stock market. Business growth, planning and strategy concept
Dividend Stocks

TFSA Investors: 1 Cheap Dividend Stock That Could Soar in 2025

This dividend-growth stock now trades at a discounted price and offers a 7% yield.

Read more »

Hand writing Time for Action concept with red marker on transparent wipe board.
Dividend Stocks

1 Dividend Stock Down 13% to Buy Right Now

Are you looking for a buy-the-dip opportunity? This dividend stock is down 13% and is a buy right now before…

Read more »