Canadian investors are searching for top TSX dividend stocks to add to their self-directed Registered Retirement Savings Plan (RRSP) or Tax-Free Savings Account (TFSA) portfolios. Fortis (TSX:FTS) offers a long track record of dividend growth and has been a popular dividend pick for decades among investors seeking passive income and total returns.
Fortis stock
The drop in the share prices of many great dividend-growth stocks this year is giving investors an opportunity to buy at undervalued prices while securing better yields. Fortis trades for close to $53.50 at the time of writing. The stock fell as low as $50 in early October but was as high as $65 at the peak last year.
Fortis operates $66 billion in utility assets in Canada, the United States, and the Caribbean. The businesses include power-generation facilities, electric transmission networks, and natural gas distribution utilities.
Fortis grows through a combination of acquisitions and organic projects. The company hasn’t made a large purchase for several years, but the capital program is robust at $25 billion and continues to grow. Fortis expects the addition of the new assets to boost the mid-year rate base from $36.8 billion in 2023 to $49.4 billion in 2028. The resulting revenue and cash flow growth should support planned annual dividend increases of 4-6% over the next five years. This is good guidance in challenging economic conditions.
Fortis gets nearly all of its revenue from rate-regulated assets. The cash flow stream tends to be predictable and reliable, regardless of the state of the economy. That’s one reason Fortis is able to plan investments with relative confidence in the long-term returns.
Dividends
Fortis has increased the dividend annually for the past 50 years. At the time of writing, the stock provides a yield of 4.4%. This is lower than the yield investors can get from other TSX dividend stocks right now, including banks, telecoms, and pipeline operators. Still, the dividend growth boosts the return on the original investment. It is tough to ignore five decades of steady dividend increases.
Should you buy FTS stock now?
Fortis isn’t as cheap as it was in October, but the stock still looks attractive at the current level. Investors who already own Fortis should continue to hold the stock and potentially look to add to the position on an additional downside. Income investors with a buy-and-hold strategy should be comfortable buying Fortis ahead of 2024. If the central banks begin cutting interest rates next year, this stock could move meaningfully higher.
