Finding that perfect mix of investments for your portfolio can make all the difference between retiring with a generous nest egg and needing to work extra years into your retirement. Investing in a utility stock can provide some defensive appeal to help meet that goal.
While there are several great options to choose from on the market, the one utility stock that investors should focus on today is Fortis (TSX: FTS)
Source: Getty Images
Meet Fortis
As one of the larger utility stocks, Fortis generates a stable and recurring revenue stream. That revenue is backed by long-term regulated contracts, which often span decades in duration. For a utility stock like Fortis, this means the company has a predictable stream of revenue to invest in growth and pay out dividends.
Fortis is one of the larger utilities. The company boasts 10 operational regions, including operations in the U.S. and Canada as well and the Caribbean. Those operations include both electricity and gas, providing an impressive defensive moat.
In total, Fortis generates nearly 99% of its earnings from those regulated assets and boasts a whopping 3.5 million customers.
One stereotype that is common with utilities is that they are “boring” investments. Boring because they lack the funds (after paying dividends) or the incentive to invest in growth.
When it comes to Fortis, that couldn’t be further from the truth.
Fortis has taken an aggressive stance on growth over the years. This includes both engaging in M&A activity to expand to new markets, as well as investing in its existing operations.
In fact, Fortis has a substantial capital improvement fund focused on upgrading existing infrastructure and transitioning facilities to renewable energy sources.
Let’s talk dividends: The main reason you want this stock
One of the main reasons why investors flock to Fortis is for the dividend that it offers. Fortis pays out a quarterly dividend, which, as of the time of writing, works out to a respectable 3.5% yield.
This means that investors who can drop $25,000 into the utility stock (as part of a larger, well-diversified portfolio) can expect to earn an income of just under $900.
And that’s not even the best part.
Fortis has an established cadence of providing annual upticks to that dividend. In fact, Fortis has amassed 51 consecutive years of increases, making it one of just two Dividend Kings in Canada.
The company is also planning to continue that cadence, through 4–6% annual increases.
Prospective investors should also note that reinvesting those dividends will allow that eventual income to continue growing.
Buy this utility stock for your portfolio
No stock is without risk, and volatility is a factor that affects the entire market. Fortunately, Fortis offers investors a mix of defensive appeal, sheer necessity, strong growth, and robust income.
In my opinion, Fortis is the utility stock that should be a core holding in any well-diversified portfolio.
Buy it, hold it, and watch your income grow.
