Dividend investing is one of the best strategies to put your money to good use in the stock market. Canadian investors have a wealth of stocks to invest in if they want to secure long-term dividend income.
Picking any high-yielding dividend stock is not the smartest decision. Instead of looking at immediate returns, you must consider whether the investment is viable for a long-term strategy. You must pick companies with strong fundamentals – the kind of cash flows and business model that can fund and grow shareholder dividends for decades without fail.
To this end, Fortis Inc. (TSX:FTS) happens to be my top pick, and I’m sure many other investors will agree. FTS is a TSX dividend stock boasting an over 50-year dividend-growth streak. Here’s why you should be considering adding it to your self-directed portfolio right now.
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Fortis stock
As of this writing, Fortis stock trades for $64.78 per share, up by 19.4% from its 52-week low. From the chart above, you can see that Fortis stock has been on an upward trend for most of the last year. The boost to its share price can be attributed to the central banks in the US and Canada slashing key interest rates.
Fortis stock saw its share price start falling in 2022 from around $65 per share, right as the banks started increasing interest rates. Share prices fell as much as $50 as central banks tried to get inflation under control. As defensive as utility businesses are, they are prone to interest rates.
Fortis generates predictable revenue because it operates in highly rate-regulated markets. However, companies like it rely on heavy debt loads to fund large capital projects. Higher interest rates make borrowing more expensive, putting a dent in the financials.
The last year saw central banks start reducing interest rates, leading to surging share prices across the board, especially for Fortis stock. There is a slight risk of interest rates going up again due to the trade tensions, leading to headwinds for Fortis again. However, that might not come to pass.
Foolish takeaway
Fortis is currently working on a $25 billion capital program that will help the company increase its rate base to around $53 billion by 2029, up significantly from $39 billion in 2024. The company expects its earnings to rise as the new assets it is working on enter service. The next five years will likely see Fortis stock increase its dividends by 4–6% annually.
Fortis runs a tight ship, making money from regulated utility businesses operating in Canada, the US, and the Caribbean. The business can generate revenues throughout different market cycles due to the essential nature of its services and the fact that it relies on long-term contracted assets for its cash flows.
Higher borrowing prices in the future might impact its financials and its performance on the stock market. However, the utility holding company has the kind of capital to weather any storm and emerge stronger on the other side. Even near its all-time high levels, FTS stock can be a solid investment to consider for your self-directed portfolio.
