Most readers who follow what I’ve written in the past know pretty clearly that Fortis (TSX:FTS) remains my top pick in the world of Canadian dividend stocks right now.
I’ve had this view long before the AI hype train took off from the station. But it’s also true that this period of market exuberance has certainly helped the likes of Fortis and other top utilities players in the market with multiple expansion and surging stock prices. The chart above tells a nice story on this front.
That said, I’d like to dive into two key reasons why I think Fortis could be a great long-term holding, even if the whole AI story falls apart tomorrow.
Let’s dive in.
Defensive business model is very valuable
In this uncertain market environment, where economic data continues to come in weak from most developed economies around the world, few sectors feel like a safe place to invest in.
And while there’s certainly been some aforementioned multiple expansion with companies like Fortis that have benefited from expectations around electricity demand surging thanks to the rise of AI and other technologies, it’s also true that Fortis’ core business is about as recession-resistant as they come.
Providing electricity and natural gas services to millions of residential and commercial customers, Fortis will continue to benefit from long-standing regulated contracts, which provide cash flow stability and meaningful growth over time. That’s a dynamic that won’t change, and it’s one of the reasons why Fortis is trading at the multiple it is right now, in my view.
Dividend growth profile is unmatched
The other key factor I think makes Fortis a top utilities company to consider is the fact that this particular player has an unmatched track record, at least in the Canadian utilities sector, of raising its dividend.
With a 51-year streak under its belt and plenty more decades to come of dividend growth on the horizon, Fortis remains my top dividend stock pick due to this forward-looking forecast. Yes, Fortis’ yield currently sits around 3.7%. That’s not bad, but it’s certainly not a yield many investors may write home about.
But it’s the company’s dividend growth that will ultimately matter more for those with a two- or three-decade investing time horizon. For such investors, buying this stock over time and holding is a strategy I think makes sense, particularly right now.
