Although the most important element to successful investing is finding high-quality stocks to buy and hold for the long haul, it’s also paramount to diversify your capital adequately, which is why Fortis (TSX:FTS) is one of the best dividend stocks to buy and hold.
Investors need to consider their risk tolerance and long-term financial goals to find the right balance between high-potential, higher-risk stocks and safe and reliable dividend stocks that can help protect their capital.
While there are several high-quality dividend stocks on the TSX to consider, particularly those on the Canadian dividend aristocrats list, Fortis is undoubtedly one of the top core portfolio stocks to buy and hold for decades.
Fortis might not offer massive growth potential, but it provides consistent growth
Fortis is a utility stock, one of the safest and lowest-risk stocks you can invest in. Not only are its operations extremely recession-resistant, since the services it offers are essential, but the industry is also regulated by governments, which allows its future revenue, cash flow, and earnings to be highly predictable.
Furthermore, with a high-quality stock like Fortis that has assets all over North America, its diversified operations help reduce the minimal risk even further.
This is what allows it to be such a reliable business and why it can protect your capital if the economy goes into a recession or the stock market sells off. It’s also what’s allowed Fortis to consistently grow its cash flow and, consequently, its dividend year in and year out for 50 years.
That means in every type of economic environment we’ve faced, from skyrocketing interest rates to the great recession in 2008, Fortis has managed not only to stay profitable but also to continue to increase the cash it’s returning to investors. It’s this consistent growth that, over the long haul, can lead to significant gains.
So, although Fortis may not offer the same growth potential as a higher-risk investment like a tech stock, over the long term, the consistent gains it provides will compound to become much more impressive, a key reason why Fortis is an ideal core portfolio stock.
Fortis is an ideal dividend stock to buy and hold for the long haul
Over the last five years, Fortis’s dividend has increased at a compound annual growth rate (CAGR) of 5.8%. Today, that dividend offers a yield of roughly 4.4%. Of course, the consistent growth is impressive, but averaging a 5.8% increase per year is not exactly massive growth.
It’s also worth noting that over that same five-year stretch, Fortis’s revenue increased at a CAGR of 6.5%, while its normalized earnings per share (EPS) increased at a CAGR of 4.2%.
The numbers are similar looking back over the last decade. Its normalized EPS has increased at a CAGR of 6.5%, while its dividend has increased at a CAGR of 6.3%. Going forward, Fortis stock expects that over the next five years, its dividend will continue to increase between 4% and 5% per year.
But why does all this matter? Over the long haul, the consistent increase in earnings not only leads to a higher dividend and more passive income for investors but also to a constantly increasing share price.
So, over the last decade, when you factor in dividends and share price growth, investors have earned a total return of 154% holding Fortis stock, or a CAGR of 9.8%.
And those returns are with Fortis trading off its highs. So, not only could those returns have been higher, but investors have the chance to buy Fortis stock today while it trades at a discount.
Therefore, if you’re looking for a high-quality and reliable dividend stock to buy and hold for the next decade, Fortis is undoubtedly one of the best options that Canadian investors have.
