Volatility in the stock market often forces many investors to take their money out of the markets and into safe-haven assets. Those who choose to remain invested in the market tend to reallocate their investment capital to relatively lower-risk equity securities. Among the low-risk assets within the stock market are Canadian utility stocks.
Utility stocks are considered boring because the price movement of these equity securities does not always align with the broader market. Whether share prices across the board soar or decline, utility stocks typically remain stable. While that makes them boring for investors in bull markets, they become the pinnacle of stability during downturns or volatile market movements.
That said, even the most stable utility stocks see share prices decline every now and then. Among the Canadian utility stocks that feature in many investor portfolios, Fortis (TSX:FTS) is a staple for most Canadian investors. Today, we will look closely at Fortis stock to help you determine why it can be a good holding in your self-directed portfolio.
For anyone unfamiliar with it, Fortis is one of the largest utility companies in North America. The $25.88 billion market capitalization diversified electricity and gas utility holding company serves over 3.4 million customers across Canada, the U.S., and the Caribbean. One of the primary reasons for the company’s stability is the essential nature of the service it provides.
Fortis provides utilities that are crucial for its consumers. Even when cutting costs, consumers never consider cutting off their electricity or gas utilities to save costs. This gives utility businesses like Fortis an excellent defensive appeal.
For providing an essential service, Fortis generates recurring and predictable revenue that is virtually guaranteed. Along with the fact that most of its revenue comes through long-term contracts in a highly regulated market, it can continue generating stable cash flows for decades without worry.
As a holding in any investment portfolio, Fortis is widely regarded as a gift that keeps on giving. Fortis is one of the top Canadian dividend stocks. Fortis has been paying its shareholders a share of its profits as quarterly dividends for decades. Not only does it pay its investors their shareholder dividends regularly, Fortis stock keeps increasing its payouts every year.
Dividend stocks with a 15-year or longer streak of hiking dividends are called Canadian Dividend Aristocrats. Boasting a 50-year-long dividend-growth streak, Fortis stock is one of the two Canadian Dividend Kings, making it an excellent pick for income-seeking investors. As of this writing, Fortis stock offers its investors dividends at a juicy 4.45% dividend yield that it pays out at a quarterly schedule.
As of this writing, Fortis stock trades for $52.98 per share, reflecting a 14.54% downturn from its 52-week high share prices. The weakness in its share prices on the stock market can be attributed to the financial pressure created by higher interest rates. Companies like Fortis rely on heavy debt loads to fund capital programs.
While the business model fares well typically, higher interest rates tend to eat into profit margins. That said, the company’s ability to generate stable cash flows during economic downturns makes it a safer investment than many others on the stock market.
With its share prices down, it might even be a good argument that there has never been a better time to consider adding the stock to your self-directed portfolio.