Are you looking for reliable, safe income from dividend stocks?
Maybe you want to supplement your income to help you deal with the rising cost of everything. Or you’re primarily looking to set yourself up for an income stream in your retirement. Either way, the right dividend stock can help.
In this article, I will discuss Fortis Inc. (TSX:FTS), a high-quality dividend stock that has raised its dividend for 50 years straight. This makes it one of the best dividend stocks in Canada and one to definitely consider.
Fortis’ dividend benefits from predictable cash flows
Fortis has generated stable cash flows over its history. This stability has been driven by the fact that 99% of the company’s assets are regulated. Underpinned by steady growth in both customers and rates, this equates to safe income for investors.
In 2022, cash flow from operations exceeded $3.1 billion. This compares to $2.6 billion five years ago. Also, in the first six months of 2023, cash flow from operations was $1.9 billion, 18% higher than the prior year. On an earnings basis, adjusted net earnings came in at $741 million or $1.53 per share. This represented an increase of 15.6% and 14%, respectively.
With continued population growth expected, as well as ongoing rate increases, Fortis is set up well for continued strength.
50 years of dividend increases = safe income
Fortis’ low-risk business model has naturally given it very predictable cash flows and earnings. This, in turn, has allowed Fortis to also be predictable in its dividend policy. The significance of Fortis’ 50-year dividend history cannot be overstated, but what about the next 50 years?
For starters, Fortis continues to benefit from rate increases, which continue to be approved for many of Fortis’ utilities. For example, Fortis owned ITC Holdings, which is the largest independent electricity transmission company in the U.S., currently enjoying a 7% annual rate base growth. This is due to transmission investments such as asset renewals and rebuilds to address aging infrastructure.
At the end of the day, all of this is translating into continued dividend growth for Fortis’ shareholders. At the company’s recent investor day, management announced that they have extended their dividend growth guidance of 4% to 6% through to 2028 (prior guidance was until 2027). This is a reflection of the confidence that management has and predictability of its business.
Clean energy transition
Finally, I would like to talk a little bit about Fortis’ plans to become a key player in the clean energy transition.
This starts with Fortis exiting its coal generation operations. Management has been very clear in its goal to exit coal, with a plan to have a coal-free generation mix by 2032. Also, Fortis is stepping up its investment in energy efficiency, renewable gas and hydrogen, zero and low carbon transportation, and LNG.
With its eye on the future of energy and foot on the gas pedal for continued reliability and growth, Fortis’ dividend is likely to provide safe income for years to come.
Bottom line
In closing, I would like to highlight the risk that higher interest rates have on utilities. Due to their capital-intensive nature, utilities are notoriously high on debt. This naturally not only negatively affects the risk profile of the business, but also investor sentiment. While this is something to be aware of, I still believe that this low-risk stock is still one of the best dividend stocks in Canada to turn to for safe income.
