Do you want to create a pension income stream with dividend stocks? If so, you have a worthy goal. While it’s not clear that dividend stocks provide the best returns (apart from Dividend Aristocrats), it is obvious that receiving dividend income provides a feeling of security. Provided that the dividend stocks in your portfolio are basically sound, owning them can provide both a sense of safety and good total returns. In this article, I will explore one TSX stock with a stellar dividend track record that could provide very consistent pension income in your RRSP or TFSA.
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Fortis
Fortis Inc (TSX:FTS) is a Canadian utility that is best known for being a “Dividend King.” That means it has raised its dividend each year for 50 consecutive years. According to Sure Dividend, there are 53 dividend King stocks on the planet! That compares to 55,000 or so listed companies worldwide.
Fortis, like most regulated utilities, enjoys very stable revenue. However, it has other things going for it that make it better than other utilities. For one thing, it’s geographically diversified, with operations across North and South America. Also, it tends to invest more in growth than its peers do. For example, it is in the middle of a four-year capital expenditure program that aims to increase the company’s rate base; the mid-year rate base increased 6% as a result of these expenditures. Finally, Fortis manages its debt relatively well for a utility. The company has $28.7 billion in debt and $24.7 billion in equity, giving it a 1.16 debt/equity ratio – not bad for the highly indebted utilities sector.
High dividends
Fortis has always had a pretty high dividend yield. At today’s prices, the stock yields 4%. That’s an above-average yield for the TSX Composite Index, which yields about 3%. Also, as mentioned at the start of the article, Fortis’ dividend has increased over time. The company is aiming for more increases through 2028, so if all goes well, investors will enjoy high and rising income with this name.
Eligible dividends
A final thing that Fortis has going for it is the fact that it pays eligible dividends. That means that dividends from the stock are grossed up by 38% and have two tax credits (one Federal and one Provincial) applied to the grossed-up amounts. Stocks whose dividends are ineligible (i.e., foreign stocks) are grossed up less, making the dividend tax credit on them less valuable.
Some dilution concerns
Despite all of the things Fortis has going for it, it does have some areas of concern. One of those is dilution. Fortis has steadily increased its share count over the years. Between 2014 and 2023, it increased 116%! That’s a pretty high rate of dilution. However, earnings increased more than the share count in the same period, resulting in rising EPS.
Foolish takeaway
It’s hard to think of a more “pension-worthy” stock than Fortis. It has high dividends, it has low volatility, and it has stood the test of time. The stock certainly isn’t risk-free. But it does merit a place in a well-diversified portfolio.
