Retirees try to seek out investments that can provide a decent income while avoiding those that can be seen as a risky buy. Some stocks can provide both of those advantages, making them ideal for any portfolio.
One such stock that may or may not be a risky buy right now is Fortis (TSX: FTS).
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Meet Fortis and the utility stereotype
Fortis is one of the largest utility stocks in North America. The company boasts 10 operating regions across the U.S., Canada, and the Caribbean. The stock is well-known for being a defensive gem for investors, and that view stems from its business model.
That business model is fairly simple. In short, Fortis provides utility services. In exchange for that service, the company is compensated. The details of that service and the amount of compensation are set out in long-term contracts that often span decades in duration.
On the face of it, that’s a dream for investors – a stable recurring revenue stream backed by long-term regulated contracts. But then how can Fortis be perceived as a risky buy?
Again, that comes down to the business model of utilities. Specifically, the predictability of that business model has some investors seeing utilities like Fortis as boring investments, or even worse, a risky buy.
That’s because utilities are capital-intensive businesses that are expensive to both operate and upgrade. The whole risky buy argument is based on the notion that rising costs and high-interest rates leave little room for investment and even cut into dividends. Given the recent market volatility that we’ve seen unfold this year, it’s not hard to see that volatility spilling over into stable businesses like Fortis.
Fortunately, when it comes to Fortis, that couldn’t be further from the truth. The company pays a well-covered dividend (more on that in a bit) and has a massive five-year capital program that includes much of those intended upgrades.
In fact, the latest capital program announced by Fortis comes in at a massive $26 billion. Those funds are to be used for both transitioning toward renewables as well as upgrading existing infrastructure.
It’s all about Income potential
One of the main reasons why investors continue to consider Fortis as a great long-term investment comes down to its dividend. Fortis offers investors a quarterly dividend that currently pays out a yield of 3.8%.
And because Fortis generates a recurring and stable revenue stream, that means the stock can be a perfect buy-and-forget stock.
More importantly, that also makes Fortis a prime candidate for those investors looking for a less risky buy right now.
To put Fortis’ earnings potential into context, let’s consider a $20,000 investment. For that initial outlay, investors can expect a first-year income of just over $760.
The reason that I say first-year is because Fortis has an established cadence of providing generous annual upticks to that dividend. Specifically, Fortis has provided that annual uptick for over 50 consecutive years without fail.
Incredibly, that’s not even the best part.
Investors who aren’t ready to draw on that income yet can choose to reinvest it, allowing it to continue growing on autopilot. This means that investors looking to reinvest those dividends will see their eventual future income be much higher than $760.
Is Fortis a Risky Buy?
No stock, even the most defensive, is not without some risk. Fortunately, in the case of Fortis, the utility stock boasts both superb defensive appeal as well as a growing dividend.
In my opinion, Fortis is a must-have stock for any well-diversified portfolio.
Buy it, hold it, and watch your future income grow.
