There’s more than a few great long-term investments on the market. Among them is one defensive dividend stock that can offer a recurring income stream.
In fact, you might say that dividend stock is a perfect set-it-and-mostly-forget-it stock for any portfolio. That stock is Fortis (TSX: FTS), and here’s why this could be the stock to own for the long term.
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Why this dividend stock needs less attention
To be clear, when I say that you can mostly forget about Fortis, that’s because of the reliable and stable business model that it follows. Fortis is one of the larger utility stocks in North America. The company owns regulated electric and gas utilities across Canada, the United States, and the Caribbean.
Due to the sheer necessity of the services it provides, Fortis stays focused on maintaining and improving its service. By extension, it also means that Fortis stays outside of the headlines.
The simple nature of the business makes it easy to follow. Fortis invests in its networks, seeks regulatory approval for the cost of those investments, and then earns a regulated, recurring revenue stream from those utilities.
Both homes and businesses rely on receiving that utility service. And while they can cut back on usage when times are tough, they can’t simply stop paying for that service. That gives Fortis one of the most impressive defensive moats on the market.
What keeps the dividend growing
Fortis’ steady business allows the company to generate a recurring and stable revenue stream. That, in turn, allows the company to predictably forecast where to invest in growth and how much to pay out in dividends.
That also makes it easier to maintain a solid dividend increase streak, which in the case of Fortis, extends to 52 consecutive years. That’s the second-longest streak in Canada and makes Fortis just one of two Dividend Kings in Canada.
As of the time of writing, Fortis’ dividend carries a yield of 3.4%. That’s not the highest yield on the market, but it’s stable, and the payout continues to grow.
In fact, investors seeking a low-volatility dividend stock will appreciate Fortis. A $30,000 investment in the stock, as part of a larger well-diversified portfolio, will generate an income of just over $1,000.
For those investors not ready to draw on that income yet, reinvesting the dividends could buy over a dozen additional shares.
Fortis has an impressive dividend streak, and the company continues to invest in growth. The company has a $28.8 billion capital plan that runs through the end of the decade. That plan is to improve its business and, by extension, expand its rate base.
Fortis expects that growth to support annual upticks to that dividend of between 4% and 6% through 2030.
What “mostly forget it” still requires
Owning a dividend stock like Fortis is a low-volatility option that is great for any long-term portfolio. That being said, it’s not an investment you want to ignore for a decade.
Utilities are capital-intensive businesses that require significant borrowing to execute those large capital plans. In other words, there’s still risk despite the stock being a defensive pick.
Specifically, subsequent dividend increases as well as progress on that capital plan are things that I continue to watch.
For now, Fortis remains an easy-to-understand and easy-to-own stock. The reliable business with steady revenue and a growing dividend make it one stock that, in my opinion, should be part of any well-diversified portfolio.
