This Canadian Utility Stock Is Positioned for Long-Term Growth

This low-risk dividend king with visible long-term growth prospects looks like a compelling buy.

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Dividend investing is a sound strategy, especially if you need extra income or regular cash flow streams. Many income-focused investors take it further by investing only in dividend kings, not just dividend aristocrats. Dividend kings are stocks that have raised dividends for at least 50 consecutive years.

The TSX has two so far, Canadian Utilities and Fortis (TSX: FTS), both in the utility sector. However, the latter, or Canada’s second dividend king, should be a better choice right now. The long-term growth prospects of Fortis are undeniable, given its new five-year capital plan, dividend growth guidance, and safety of quarterly payouts.

Milestone

Fortis achieved dividend king status when it announced a 4.4% dividend hike in Q4 2023. As of this writing, the $26.4 billion regulated gas and electric utility company pays an attractive 4.4% dividend. At $53.57 per share, the total return in 20 years is 668.2%, or a compound annual growth rate (CAGR) of 10.7%.

On September 19, 2023, Fortis announced a new $25 billion five-year capital plan. In five years, the growth outlook for 2024 to 2028 is a 6.3% increase in the rate base, or $49.4 billion. According to management, the capital plan is low risk and highly executable as almost 100% are regulated investments, with 18% allocated to major capital projects.

Fortis expects to fund its capital plan with cash from operations and regulated debt. More importantly, this should support the utility stock’s dividend growth guidance. With the planned investment in solar and wind projects, the shift to cleaner and greener energy is also on the horizon.

“Our sustainable regulated growth strategy is focused on delivering cleaner energy that remains affordable and reliable for our customers while supporting annual dividend growth of 4% to 6% through 2028,” said David Hutchens, President and CEO of Fortis.

Growth prospects beyond 2028

At the end of the five-year capital plan, Fortis will pursue additional opportunities to expand and extend growth. Expanding the electric transmission grid in the U.S. would facilitate the interconnection of cleaner energy under its long-range transmission plan, including climate adaptation and grid resiliency investments.

A stable business model and execution of its capital plan help Fortis overcome economic uncertainties and enhance shareholder value. In Q1 2024, net earnings increased 5% year over year to $459 million. Hutchens said, “We extended our solid growth momentum through the first quarter of 2024, underpinned by the strength of our diversified transmission and distribution business.”

Management boasts that Fortis is on track to achieve its corporate-wide targets to reduce direct greenhouse gas (GHG) emissions by 50% by 2030 and 75% by 2035 from a 2019 base year. The top-tier utility firm commits to further decarbonizing over the long term while remaining laser-focused on reliability and affordability.

Safety net

Fortis is for risk-averse investors, much like a safety net is for acrobats performing stunts. The low-risk, recession-proof business model and longevity of dividend growth are compelling reasons to invest in the utility stock, not to mention the visible growth prospects in five years and beyond.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Christopher Liew has no position in any of the stocks mentioned. The Motley Fool recommends Fortis. The Motley Fool has a disclosure policy.

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