Why Fortis Should Be One of the Core Investments to Own

How balanced is your portfolio? If you haven’t already considered buying Fortis as one of your core investments, you want to now.

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The market provides plenty of great investments to add to your portfolio. Some of those well serve as core investments to consider, even during times of market volatility. Even better, those core holdings can provide both growth and income-earning potential for decades.

Fortis (TSX:FTS) is one of those core investments to consider buying right now.

Fortis has a unique, yet lucrative business model

For those unaware of the stock, Fortis is one of the largest utility stocks on the continent. The company boasts 10 operating regions scattered across Canada, the US, and the Caribbean. But it’s not that diversification aspect that makes Fortis a great investment.

Instead, let’s look at the lucrative business model that Fortis follows.

Utilities like Fortis generate a stable and recurrent revenue stream that is backed by long-term regulated contracts. Those contracts can and often do span several decades in duration. In other words, as long as Fortis continues to provide utility services, it will generate a recurring revenue stream.

This makes the company one of the most defensive options on the market. And more importantly, unlike other defensive investments like telecoms and grocers, Fortis’ customers can’t trade down their utility service.

This results in a stable revenue stream that is used to invest in growth initiatives and pay a quarterly dividend (more on that in a bit).

That stable business model is one of the reasons why some view utilities like Fortis as boring investments that lack growth. The stereotypical view is that once utilities generate that stable revenue stream, there is little incentive to invest in long-term growth.

When it comes to Fortis this couldn’t be further from the truth.

Over the years the company has taken an aggressive stance toward growth. Specifically, Fortis acquisition targets have helped the company branch out into new markets. In recent years, that growth has shifted more towards upgrading existing facilities and transitioning over to renewables.

What about income?

One of the main reasons why investors continue to flock to Fortis is for the stable and attractive dividend that the company offers. As of the time of writing, Fortis offers a quarterly dividend that carries a yield of 4.22%.

This means that investors who drop $25,000 into Fortis can expect a first-year income of over $1,000. The reason I say first-year income is because Fortis has provided an annual uptick to that dividend for 49 consecutive years.

Fortis plans to continue that practice over the next few years, with increases of up to 6% forecasted. Note that with the next annual bump, Fortis will become a Dividend King with 50 consecutive years of increases.

This passive income is significant for investors who see Fortis as one of the core investments to buy right now. This is because investors who are not ready to draw on that income can reinvest those dividends until needed.

This can provide a significant boost to any eventual income stream over the long term. It also allows for your Fortis investment to grow on autopilot.

Will you buy Fortis as one of your core investments?

Fortis is a great long-term investment option to consider. The stock is particularly appealing to those investors with long-term horizons who are looking to establish an income stream. Apart from that income potential, Fortis also boasts one of the largest defensive moats on the market.

In my opinion, Fortis should be one of the core investments for any well-diversified portfolio.

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 Demetris Afxentiou has positions in Fortis. The Motley Fool recommends Fortis. The Motley Fool has a disclosure policy.

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