There are stocks that are nice to own, and there are stocks that you really need to own. For me, there is one dividend stock that I really need to own and will never sell.
Market downturns and volatility are a real part of investing. To watch a portfolio drop in value sharply can change the long-term outlook for any investor. That’s only one of several reasons why this dividend stock is one that I won’t sell, not even in a downturn.
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A business that investors can understand is key
That stock is Fortis (TSX: FTS). And it’s one of those businesses that’s easy to understand, own and earn dividend income from.
The company is one of the largest utility stocks in North America. That includes regulated electric and gas service to parts of Canada, the U.S. and the Caribbean. The sheer necessity of the services that Fortis provides to households and businesses is a key element of the stock’s appeal.
To put it another way, you can postpone a vacation or put off buying a new vehicle. But cutting your electricity or natural gas use can only go so far.
Adding to that appeal is the regulatory side of the business. Utilities like Fortis operate under frameworks that set out how they recover costs and earn returns on their infrastructure. In other words, Fortis generates a stable, recurring revenue stream that’s backed by long-term frameworks.
By extension, it also means that Fortis is able to reliably predict earnings. In the most recent quarter, Fortis reported earnings of $0.78 per share. That reflects a $0.02 improvement over the same period last year.
As a long-term investor, that’s the type of business performance I expect to see, even during a downturn. Even if the share price falls, the underlying utility can continue to operate well.
What about that dividend?
A stable business backed by one of the best defensive moats on the market is one thing. What really attracts investors like myself to Fortis is the dividend that it offers.
Fortis offers a quarterly dividend that, as of the time of writing, carries a yield of 3.4%. That’s not the highest yield on the market, but it comes from the stable business described above.
More importantly, that income is also growing.
Fortis has the second-longest dividend increase streak in Canada. Currently, that stands at 52 consecutive annual increases. If you started investing in Fortis in 1974, you would have received a bump to that dividend in every year since then.
For investors with $25,000 to invest in Fortis within a larger, diversified portfolio, that works out to a first-year income of over $850. The reason I say first-year income is because that $850 income can be reinvested to receive nearly a dozen new shares.
That’s a way to keep building a position in a single dividend stock without adding more cash.
But again, there’s still more.
Fortis isn’t just paying out dividends from its regulated business. The company is also investing in long-term growth. Specifically, Fortis has a $28.8 billion capital plan that extends through 2030.
That plan is expected to support annual 7% growth in its regulated asset base. In turn, the company expects that growth to support annual dividend increases of 4–6% through 2030.
Why this dividend stock stays in my portfolio
There’s always going to be the next best growth stock, or a dividend stock that carries a much higher yield. The reason I hold Fortis is because of the stability and defensive appeal it offers.
I would reconsider if Fortis struggled to cover its dividend or fund its growth plans. But a falling share price alone wouldn’t be enough to make me want to sell.
In short, I’m comfortable holding it even through a downturn, collecting those quarterly dividends and waiting for that growth to come.
