Although there are hundreds of Canadian stocks to choose from, one of the best and most popular stocks that Canadians invest in is Fortis (TSX:FTS), the large-cap utility stock with a market cap of more than $27 billion.
Utility stocks are always popular investments, given their role as safe and defensive core portfolio stocks. Therefore, especially in uncertain economic environments and volatile market conditions, as we’ve seen lately, utility stocks can play an important role in our portfolios.
Furthermore, because they are so safe and, more importantly, reliable, utility stocks can be excellent long-term investments, helping to compound your money. In this way, investors can consistently increase their passive income.
For example, Fortis has the second-longest dividend growth streak in Canada, increasing its dividend for 49 consecutive years.
Furthermore, since the start of 2006, Fortis is up by 339% – a compounded annual growth rate (CAGR) of 8.9%. That’s better than both the TSX and S&P 500 over that stretch, which have earned investors CAGRs of 3.3% and 7.4%, respectively.
In other words, if you had invested $2,500 in Fortis stock back at the start of 2006, your investment would be worth $10,983.75 today, compared to $4,376 if you had invested in the TSX or $8,720.50 investing in the S&P 500.
So let’s look at why Fortis is such a high-quality stock that you can buy now and hold with confidence for decades to come.
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Why is Fortis stock such a stellar investment for Canadians?
Plenty of utilities make excellent long-term core portfolio stocks. Fortis is one of the best due to its consistent growth and long-term track record of increasing the passive income it provides to investors.
Utilities are already low-risk businesses due to the fact that the services they provide are essential and the industry is highly regulated by governments. Fortis takes it a step further by owning multiple utility companies, which diversifies its operations and helps lower the risk even more.
In total, Fortis stock owns 10 different utility operations spread across Canada, the United States and the Caribbean, serving 3.4 million customers.
Furthermore, because its business is regulated and it’s such a defensive company, Fortis’ future revenue and profitability growth are often highly predictable, another reason why it’s a low-volatility stock.
For example, right now, Fortis is in the midst of a five-year capital plan whereby it expects its rate base will grow at a CAGR of 6% through 2027. In addition, it also expects that its dividend, which currently offers investors a yield of approximately 4%, will grow at a CAGR of roughly 5% through that stretch.
Therefore, while it doesn’t offer the same type of explosive growth potential that other stocks may offer, Fortis is appealing because its defensive and is known for growing at a slow but steady pace.
In just the last five years, for example, its revenue has increased by 33%, net income by 35%, and dividend by 33%.
And going forward, as the world continues to transition to cleaner energy sources and the need for new electric transmission projects continues to grow, Fortis has a ton of investment opportunities to continue expanding its operations.
Therefore, while the market and economic environments are so uncertain and Fortis trades off its highs, not only is it an excellent stock to buy now, but it’s one of the best investments that you can hold for years to come.
