Investing in dividend stocks that continue to provide growing distributions over the long term is a great strategy for those looking to grow their wealth. One such company I’ve pounded the table on for some time is Fortis (TSX:FTS). That view hasn’t changed, and has remained as constant as the company’s continuing focus on providing annual dividend growth in the 6% range over the long term.
Fortis’s stability and overall business model remain attractive to long-term investors. Here are three reasons why. Fortis is a top pick of mine in the dividend space.
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What Fortis does
Fortis is a top Canada-based utilities company, providing electricity and natural gas services to 3.4 million customers in Canada and the United States. The company owns and operates 10 transmission and distribution assets in North America as well as holding some operations in the Caribbean. Far from what many think, Fortis is a more diversified player in this space, though the company’s core focus remains on the Canadian market.
The company’s business model is focused on regulated utilities, meaning consumers benefit from knowing what they’re going to pay in advance, and investors benefit from steadily rising rates over the long term. As electricity consumption picks up, the company stands to benefit from a surge in volume and will need to continue to reinvest in its infrastructure over time to handle these higher volumes.
In any case, higher revenue should translate well into the company’s bottom line, with consumers forced to take price increases or have their power and heat shut off. In the Canadian market, that’s not possible.
Strong financials
Fortis’s recent results highlight my previously mentioned fact. Consumers continue to use more and more energy, benefiting utility companies disproportionately.
Fortis’ Q1 net income surged 9.2%, as the company’s profit margin moved up 200 basis points, from 13% to 15%. This came at a time when revenue actually declined, but Fortis offset this reality with lower capital expenditures.
With earnings per share increasing to $0.93, the company’s dividend is well covered, and with more cash flow growth expected, the company should be able to retain its long-standing dividend-growth profile. For 50 straight years, the company has found a way to raise its distributions to shareholders through previous recessions and economic turmoil.
Fortis stock looks cheap
Trading at around $53 per share at the time of writing, Fortis currently carries a price-to-earnings multiple of around 17 times. Compared to other major utilities players that have seen their multiples balloon in recent months as investors bet on rising energy consumption across the board, this is a multiple I think is overly attractive.
For long-term dividend investors seeking a mix of both capital appreciation and income, this is a top stock to consider right now.
