Retirees seeking passive income and other investors looking for long-term total returns have an opportunity to buy some great TSX dividend stocks at discounted prices for a self-directed Tax-Free Savings Account (TFSA) or Registered Retirement Savings Plan (RRSP) portfolio.
Buying stocks on dips requires a contrarian investing style and the patience to ride out ongoing volatility. However, picking up good dividend stocks on dips is one way to get a better yield on savings while potentially setting you up for decent capital gains on a rebound.
Fortis
Fortis (TSX: FTS) is a Canadian utility stock with $66 billion in assets located in Canada, the United States, and the Caribbean. The share price trades near $53 at the time of writing. This is down about 10% over the past year and roughly 17% below the 2022 high.
Fortis primarily operates rate-regulated assets, including power-generation facilities, electric transmission networks, and natural gas distribution utilities. Revenue from these businesses tends to be predictable and reliable. The steady cash flow helps Fortis plan its investment strategies and gives management the confidence to give investors solid guidance for dividend growth.
Fortis is working on a $25 billion capital program that will increase the rate base from $37 billion in 2023 to $49.4 billion in 2028. The resulting boost to cash flow is expected to support planned annual dividend increases of 4-6% over that timeframe. Fortis has other projects under consideration that could be added to the development pipeline to boost revenue expansion. In addition, Fortis has a good track record of making strategic acquisitions.
The board increased the distribution in each of the past 50 years, so investors should feel comfortable with the guidance for dividend hikes. At the time of writing, Fortis stock provides a 4.4% dividend yield.
The decline in the share price is primarily due to the jump in interest rates in Canada and the United States over the past two years. High inflation forced the Bank of Canada and the U.S. Federal Reserve to raise rates in an effort to cool down the economy and bring the jobs market back into balance. Inflation is down to 3.5% in the United States and 2.9% in Canada as of the March 2024 reports. This is better than 9% and 8%, respectively, in June 2022 but still above the 2% target.
If inflation remains sticky and the central banks are forced to keep interest rates at current levels into 2025, there could be more downside for Fortis stock.
Most economists still expect the central banks to start cutting rates at some point this year to try to orchestrate a soft landing for the economy as inflation pressures continue to ease. Once rates begin to decline, there could be a surge in new investor interest in Fortis and other utility stocks.
The bottom line on Fortis
Near-term volatility should be expected until there is clear guidance from the central banks that interest rates are headed lower. That being said, Fortis already looks cheap, and the dividend growth will steadily increase the yield on the initial investment. Buying Fortis on dips has historically proven to be a savvy move for investors seeking long-term capital appreciation, so getting in at this level should be fine. If you have some cash to put to work, this stock deserves to be on your radar.
