During an economic downturn, investing in high-quality dividend stocks that provide the sort of passive income many investors are after is important. Indeed, a good chunk of total returns generated in the stock market come from dividends. Accordingly, having the right mix of income stocks and higher-growth names in a portfolio is important.
The two companies I’m going to highlight below provide a mix for long-term investors. Additionally, these companies also have shown a historical preference for raising their dividend distributions over time. That’s generally a solid investment foundation to build upon, making these prospective portfolio staples for so many investors.
Let’s dive in!
Fortis
Fortis (TSX: FTS) is a top Canadian utilities company that’s seen impressive long-term growth. Despite some volatility in recent quarters, this company’s steady stream of cash flows derived from its regulated utilities business provides the kind of earnings growth that has fueled a five-decade-long streak of dividend increases over time.
With a current dividend yield of 4.2% and plenty of potential for future dividend hikes in the future, Fortis stock is a bond-like proxy I think investors ought to consider right now. In its first quarter, the company’s net earnings grew from US$437 million to US$459 million over the year-ago period, with adjusted earnings per share coming in at $0.93. Thus, the company will need to continue to see earnings growth moving forward to justify the 6% or so annual increases it has provided to investors over the long-haul.
With strong capital spending plans and a decent likelihood of rate increases over time, this is a company that remains among the best dividend stocks to consider for its diversified utilities exposure. For those looking at a long-term portfolio holding, Fortis remains a top income stock I think is worth considering.
Restaurant Brands
Restaurant Brands (TSX: QSR) is one of the world’s largest quick-service restaurant companies headquartered in Canada. The company brings in approximately $40 billion in system-wide sales annually and operates 31,000 restaurants in approximately 100 countries. In addition, the company owns and operates four of the world’s prominent and quick service restaurant brands: Tim Hortons, Popeyes Louisiana Kitchen, Firehouse Subs, and Burger King.
Restaurant Brands reported impressive net income of US$328 million for the first quarter of 2024. The net cash provided by operating activities was US$148 million and free cash flow was US$122 million. Furthermore, the company reported an increase in its consolidated comparable sales by 4.6% and system-wide sales by 8.1% year-over-year. The operating income for the quarter was US$544 million, an increase from US$447 million year-over-year.
Restaurant Brands is targeting comparable sales growth of over 3% and unit growth of more than 5% by the conclusion of 2028. The company plans to grow its system-wide sales by 8% and adjusted operating income by 8% in the next 5 years. Overall, for those looking for a defensive income stock paying above 3% that will benefit from potential trade-down effects in this inflationary environment, Restaurant Brands is certainly an enticing pick at current levels.
