Stock market investing gets investors the best returns, particularly during bull markets. Stock market investors can benefit from bull markets by leveraging the momentum in the entire market to capture capital gains for wealth growth. Ideally, identifying and investing in stocks trading at discounted valuations can work wonders for short-term gains in a bullish market.
However, looking for holdings from the lens of a long investment horizon might help investors identify far better investments for solid long-term wealth growth. The TSX boasts plenty of high-quality dividend stocks with significant growth potential. Besides capital gains, Canadian Dividend Aristocrats offer quarterly payouts that grow each year.
Canadian Dividend Kings are dividend stocks that have raised dividends for at least 50 years. Canada boasts two such dividend kings, with one of them being a top choice for investors seeking solid long-term growth: Fortis (TSX:FTS).
Fortis stock
Fortis is a $26.28 billion market capitalization diversified gas and electric utility holdings company. The company serves millions of customers across Canada, the U.S., Central America, and the Caribbean, providing essential utilities. The company has a solid business model, generating revenue in highly rate-regulated markets through long-term, contracted assets.
These factors mean Fortis generates predictable and virtually guaranteed cash flows from its operations. Generating predictable revenue can be quite beneficial for any publicly traded company, especially during harsh economic environments. It helps the stock perform better than many others during turbulent markets, and that has been the trend in general for Fortis stock.
The impact of rising interest rates
Typically, utility businesses like Fortis and its peers have a largely flat price movement on the stock market regardless of bullish or bearish markets. However, the last couple of years have seen Fortis stock share price pull back significantly. Red-hot inflation forced central banks in the U.S. and Canada to implement a series of aggressive interest rate hikes.
Higher interest rates increase borrowing costs, compelling economic activity to slow down and cool inflation. As effective as it is, the strategy creates plenty of short-term problems before benefits come along. One negative impact is the effect on relatively stable businesses like utility companies.
Utility businesses rely on taking heavy debt loads to fund in part or all of their operations and capital programs. Higher key interest rates also impacted utility businesses like Fortis, affecting its bottom line. Weighing on its balance sheet, higher interest rates led to lower share prices.
Despite the challenges, Fortis has persevered due to its resilient business model. Fortis achieved the status of being a Canadian Dividend King when it announced a 4.4% increase in the fourth quarter of fiscal 2023. With its new capital plan underway, the utility giant has plans to continue its dividend-growth streak for years to come.
Foolish takeaway
The Bank of Canada (BoC) has stopped its interest rate hikes as inflation nears target levels. Depending on how well things proceed, we might have interest rate cuts on the horizon. While it might take years for interest rates to even come close to historical lows, cuts right now might mean a significant boost is around the corner for the market.
As of this writing, this dividend stock trades for $53.31 per share. Still down by almost 8% from its 52-week high, there is plenty of long-term growth in store for Fortis stock. At current levels, it pays its shareholders their dividends at a 4.43% dividend yield that you can lock into your portfolio before rising share prices deflate its payout yields.
