Investing in dividend stocks is one of the best options for investors taking a long-term approach to the markets. Companies that pay out consistent (and growing) dividends tend to produce similarly consistent cash flow growth over time. Perhaps no Canadian company exemplifies this sort of dynamic better than Fortis (TSX:FTS). It is simply one of the few stocks in the TSX that keeps raising the dividend bar each year.
Of course, the utility sector is rife with companies that pay out consistently growing dividends. But Fortis’s track record and its strong market share in key markets make this a top dividend growth stock I think investors should consider adding to on dips moving forward.
Here’s why.
A business model built on stability
Fortis’s business model revolves around utility transmission and distribution, primarily in the North American market. However, the company does own various electricity generation and utilities operations in the Caribbean, making this a play that’s more geographically diversified than many may think.
The company’s core business involves 10 assets in the Canadian and U.S. markets, serving roughly 3.4 million customers. The nature of Fortis’s business, primarily electricity and natural gas transmission, leads to very stable revenue and cash flows over time. Being a regulated utility, Fortis is able to pass on price increases directly to investors while retaining capital to reinvest in its core infrastructure.
A dividend stock with strong financials
Of course, over time, capital expenditures and higher input costs can weigh against profitability. Utilities aren’t immune to downturns, though they are known as recession-resistant assets. That’s because consumers need to keep the lights and the heat on, no matter what. The utility bill is usually the first to get paid every month and for this reason.
Fortis has seen very stable financial results in recent quarters. The company’s most recent report saw the company bring in net earnings of $1.5 billion, or $3.10 per share, in 2023. Given the fact that the company pays out $2.36 in dividends each year (good for a 4.3% yield), it’s true that this dividend is well-covered by existing earnings.
With a price-to-earnings ratio of just 17.8 times, Fortis remains a well-valued stock with a dividend that rivals bond yields in Canada. Those thinking long-term may want to consider adding this gem on any weakness moving forward.
