In this declining interest rate environment in Canada, investors are finding that yield-producing investments are gaining ground and seeing increased interest among investors of all types. Of course, finding the types of dividend stocks that provide stability as well as capital appreciation potential is easier said than done. However, a top Canadian stock I’ve pounded the table on for a long time with such a profile for long-term investors is Fortis (TSX:FTS).
This company’s strong and growing dividend profile is among the key reasons I’ve continued to remain bullish on this name and is one of the key drivers behind its recent rise (see stock chart above). Here’s more on why I think this top utility player is one worth considering right now.
Energy demand only going to increase over time
Aside from the clear and decisive rise of electric vehicles in Canada and around the world, the sheer amount of investment in artificial intelligence initiatives has led to a sharp increase in expected future electricity demand. This growth in demand from corporate clients complements the company’s core customer-oriented business model, with Fortis serving roughly 3.5 million customers around the world. A company with a strong presence in Canada, Fortis also touts strong and growing operations in the U.S. market as well as some Caribbean markets as well.
I think the rise of artificial intelligence and the electrification of our economy will provide sustainable growth tailwinds for Fortis and its peers. As a diversified energy provider (with natural gas operations as well), investors also benefit from cash flow stability. Simply put, Fortis’s customer base can’t afford not to pay their bills — winter is dark and cold in Canada, and folks can’t be without heat and light for very long.
Strong financial performance
The aforementioned strength of Fortis’ core business has delivered strong revenue and earnings growth over the long term. These factors have led the company’s valuation multiple to expand somewhat in recent months (alongside improved expectations of energy demand growth), so there’s less of a value argument that can be made for this stock.
However, with consistent and stable revenue growth (and impressive earnings per share growth of around 26% year over year this past quarter), expectations are that Fortis should be able to continue to deliver strong dividend growth to its investors over time. Importantly, Fortis has a five-decade-long track record of increasing its dividends to investors, and I don’t expect this trend to slow down anytime soon.
Indeed, if we do see the surge in demand many analysts and industry experts expect we’ll see in the coming years, Fortis could potentially increase the rate at which it grows its dividends over time. Such a move should enhance the stock’s value further among income-oriented investors, which the company relies upon for a significant portion of its investor base right now.
Bottom line
With a dividend yield of 4% and all indications pointing to the likelihood that this distribution will only increase over time, I think investors looking for stable and consistent passive income may want to consider this stock on significant pullbacks moving forward.
As far as Canadian dividend-growth stocks are concerned, Fortis remains my top pick right now. I don’t anticipate that view will change anytime soon.
