The stock market moves and share prices follow, depending on market volatility. In the current environment, the volatility level can change abruptly from low to very high. Because of the wild swings, investor confidence tends to fall and turn risk averse.
Fortunately, dividend investors have safer choices in Dividend Aristocrats during market downturns. A defensive name that belongs to every portfolio is Fortis (TSX:FTS). The top-tier utility stock isn’t only a Dividend Aristocrat but will become TSX’s second Dividend King this year.
Highly regulated asset base
The $29 billion regulated gas and electric utility firm has a diversified asset base comprising 10 utility operations. About 99% of the assets (82% electric and 17% gas) are regulated, and only 1% is non-regulated (energy infrastructure). Management’s pursuit of additional opportunities within or beyond the existing franchise territories (Canada, the U.S., and the Caribbean) is ongoing.
Coronation of the King
Fortis has raised its dividend for 49 consecutive years, and another hike in 2023 will officially make it a Dividend King. Canadian Utilities was the first TSX stock to achieve this incredible feat. Fortis’s most recent dividend hike was on September 28, 2022, when the board of directors approved a 6% increase in the quarterly dividend.
Dividend-growth guidance
On October 28, 2022, investors received more good news. David Hutchens, Fortis’s president and chief executive officer, announced, “Today, we are unveiling our largest five-year capital plan of $22.3 billion, an increase of $2.3 billion over our prior plan, and announcing annual dividend-growth guidance of 4% to 6% through 2027.”
Hutchens added, “Together, our regulated growth strategy and long-term dividend-growth guidance are expected to produce premium North American utility returns over the long run.” The new five-year capital plan would increase the mid-year rate base from $34.0 billion in 2022 to $46.1 billion by 2027, or a compound annual growth rate of 6.2%.
According to management, the funding for the five-year capital plan will come from cash from operations, debt issued at the regulated utilities, and common equity from the dividend-reinvestment plan. Fortis expects long-term, steady rate base growth to drive earnings and support the annual dividend-growth guidance.
The capital plan should also lower the dividend-payout ratio over time. In 2022, net earnings increased 8% to $1.33 billion versus 2021. Hutchens said, “2022 was a year of execution with strong financial, operational and sustainability results across our utilities.”
Cleaner energy future
Fortis should also attract more ESG (environmental. social, and governance) investors, as the company prepares to invest $5.9 billion in cleaner energy over the next five years. It commits to be part of the cleaner energy future and aims to reduce greenhouse gas (GHG) emissions by 75% by 2035. Moreover, given its additional 2050 net-zero direct GHG emissions target, the company will decarbonize over the long term.
Peace of mind
Fortis is an ideal core holding for young and old investors, not to mention retirees. At $60.07 per share (+12.01% year to date), the dividend yield is a decent 3.79%. The Dividend Aristocrat is a must-own stock if you value stability and want an uninterrupted passive-income stream. More importantly, you’re buying peace of mind amid the market noise.
