Forget Air Canada: Buy This Magnificent Utilities Stock Instead

Investors should focus on steady dividend growth for their retirement portfolios.

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Air Canada (TSX:AC) has been on a wild ride in the past few years, and many investors like to play the volatility of the airline stock. This might be fine for savvy traders, but investors with a buy-and-hold strategy hoping to build long-term wealth and collect growing dividends should consider a stock like Fortis (TSX:FTS) instead for a self-directed Tax-Free Savings Account (TFSA) of a Registered Retirement Savings Plan (RRSP).

Fortis stock

Fortis is a good stock to own for investors who simply want to make the purchase and leave the shares alone to do their work building wealth for decades.

Fortis trades near $53.50 at the time of writing. That’s up from the 2023 low of around $50, but still down from the $65 the share price reached at one point in 2022. Buying Fortis at any time tends to pay off eventually, and taking advantage of pullbacks to boost the position can put extra gains in your pocket.

Fortis owns about $66 billion in utility assets in Canada, the United States, and the Caribbean. Nearly all the revenue comes from rate-regulated businesses. This means the revenue stream tends to be predictable and reliable. Homes and businesses need electricity and natural gas, regardless of the situation in the economy, so the power-generation facilities, electric transmission networks, and natural gas utilities that Fortis owns should deliver steady financial results in good and bad economic times.

Fortis grows by making acquisitions and building new assets. The current $25 billion capital program is expected to increase the mid-year rate base from $36.8 billion to $49.4 billion over five years. That works out to a compound annual rate of about 6.3% from 2024 to 2028, and upside revisions are possible if new projects that are under consideration get the green light.

Management expects revenue and cash flow to increase enough to support annual dividend hikes of at least 4% through 2028. This is good guidance in a turbulent economic climate. Investors should feel comfortable with the outlook. Fortis has increased the dividend annually for the past 50 years. At the current share price, investors can get an annualized dividend yield of 4.4%. That’s better than the offer available on a five-year Guaranteed Investment Certificate (GIC) from most of the big banks at the time of writing.

A $10,000 investment in Fortis stock 20 years ago would be worth about $70,000 today with the dividends reinvested.

The bottom line on top stocks to build wealth

There is no guarantee that Fortis will deliver the same returns over the next two decades, but the stock is a good example of how owning dividend-growth stocks can help investors build wealth. Fortis looks attractive at the current price and deserves to be on your radar for an anchor position in a diversified retirement portfolio focused on dividends and total returns.

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.

The Motley Fool recommends Fortis. The Motley Fool has a disclosure policy. Fool contributor Andrew Walker has no position in any stock mentioned.

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