Dividend investing is one of the best strategies you can use to earn extra money on the side without doing much of anything. Canadian stock market investors have a wealth of dividend stocks to choose from if they create a self-directed portfolio to generate passive income. Creating a dividend portfolio you can trust to achieve your financial goals takes plenty of time, discipline, and smart choices.
There is no shortage of dividend stocks in Canada, but it’s important to remember that not all dividend stocks are the same. When investing in dividend stocks, you must carefully pick equity securities with solid underlying businesses that can comfortably fund payouts and grow them regularly.
A stock with a stellar track record of distributing payouts to shareholders and increasing them each year is one you can count on to generate passive income that can keep pace with and beat inflation. To this end, one Canadian dividend legend should be a staple in any stock market investor’s self-directed portfolio.
That Canadian dividend legend is Fortis (TSX:FTS), and here’s why this stock must have a place as the solid foundation for your passive-income portfolio.
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Fortis and its historical track record
Fortis is a $32.90 billion market capitalization company that owns and operates several utility transmission and distribution assets throughout Canada and the United States. It boasts over 3.5 million customers for electric and gas utility services. It also has smaller stakes in many utility businesses in the Caribbean.
The company has everything going for it when it comes to being a reliable business. Almost 100% of the company’s assets operate in highly rate-regulated markets. 93% of its assets are engaged in the low-risk transmission and distribution business. The company’s business model lets it generate stable and predictable cash flows. The result is an ability to fund its capital programs without worrying about fluctuating commodity prices and economic uncertainties affecting revenues.
The company consistently invests in improving safety standards and operational efficiency. Expanding its rate base also lets it grow revenue—all these points toward the ability to deliver shareholder dividends without fail. To make things better, Fortis can afford to increase its payouts. It should come as no surprise that Fortis has been increasing its payouts for more than 50 years.
Its healthy financial performance has allowed Fortis stock to deliver an average shareholder return of over 10% over the last two decades. This year alone, Fortis has invested around $1.4 billion and will likely accomplish its goal of investing $5.2 billion in capital expenses to grow its rate base.
The company looks well-positioned to continue increasing payouts for the foreseeable future.
Foolish takeaway
As of this writing, Fortis stock trades for $65.90 per share, up by 26.27% from its 52-week low. It boasts a 3.73% dividend yield. Falling interest rates have eased the financial burden on the company, a factor that resulted in declining share prices due to its heavy debt load last year. With more interest rate cuts expected this year, Fortis stock might see a further uptick in share prices because it has capital-intensive operations.
If you’re on the hunt for a solid foundation to set up your dividend income portfolio, Fortis stock is as good as it can get. Building such a portfolio in your Tax-Free Savings Account will even let you enjoy all the returns without incurring any taxes on the dividends or capital gains you earn from investing in the stock.
