Finding the best dividend play of any decade is a difficult task, and that’s in part due to the reality that projecting forward how a given company will perform over any extended period of time is a fool’s (lower-case f) errand (generally speaking). However, I’ve long thought Fortis (TSX:FTS) is a long-term winner investors can feel comfortable owning over such a time frame. And in this environment, that’s perhaps more important than anything.
For long-term investors seeking the right mix of defensive growth, dividend income and value, here’s why Fortis stands out as a solid vehicle to achieve all three outcomes.
Defensiveness
For those seeking to tilt their portfolios more toward defensive equities, utility companies like Fortis remain excellent options for investors looking for slow and steady upside appreciation alongside a very strong dividend-growth profile.
I’ll get to Fortis’s underlying fundamentals in a minute. But just touching on the company’s defensive profile, it’s important for investors to qualify the company’s overall financials within the context of its core business model. Fortis generates growing revenue and earnings over time by leveraging its pricing power in key markets (with the blessing of regulators) and continuing to keep service running smoothly for its more than three million customers.
So long as this industry doesn’t see some sort of massive disruption, there’s no reason to believe that Fortis’s revenue and earnings growth trajectory won’t continue. In other words, Fortis’s customer base is held relatively captive, and unless they don’t want to light or heat their homes, they’ll pay their monthly bills. That results in extremely stable cash flows over time Fortis can use to compensate investors.
Income
And compensate investors, the company has. Fortis has returned a growing dividend distribution to shareholders for more than 50 consecutive years, making this stock one of the more notable Dividend Kings on the TSX.
Again, Fortis’s rock-solid cash flow base and its ability to continue to raise prices in the long term as it expands into new markets should support continued dividend increases over time. While Fortis stock only yields 3.7% at the time of writing, which is much lower than where other fixed-income assets come in in terms of rate of return, this is an excellent holding for investors looking to create meaningful passive-income streams in retirement.
Value
Total returns matter, and from that perspective, Fortis certainly looks attractive, given its mix of capital appreciation upside and dividend income. However, from a valuation perspective, there is also a lot to like about this stock, which currently trades at around 20 times trailing earnings.
Yes, that might seem expensive for a company in such a boring industry. But I’d argue that boring is what most investors want right now.
For those seeking a holding with the potential for multiple expansion over the long term, I’d argue Fortis is one such company to consider (given its expected bottom-line growth over time).
