Fortis (TSX: FTS) is a perfect stock to cling to when the stock market becomes volatile. Every Canadian investment portfolio is wise to hold a few stocks like Fortis. They help anchor a portfolio through volatility. There are plenty of reasons why Fortis deserves a place in your portfolio. Here are five of reasons to think about.
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A high-quality utility portfolio
Firstly, Fortis operates a very high-quality portfolio of essential power and gas utility assets. Ninety-five percent of its asset mix is transmission and distribution. It forms the backbone of the energy grid in regions where it operates.
Ninety-nine percent of its assets are regulated, which means it operates a monopoly that is governed by regional regulators. It provides safe, reliable service and invests to expand that service. In return, it gets to enjoy regulated returns on those investments.
An attractive growth plan
Secondly, Fortis has an attractive growth profile. In its recent third quarter, it announced an uptick in its five-year capital growth plan. It expects to spend around $32.2 billion (around $6.5 billion per year) on relatively low-risk, accretive projects (like transmission expansion and LNG infrastructure investments).
Consequently, it expects its rate base to grow by a 7.5% compounded annual growth rate (CAGR). Growing demand for energy in North America is justifying further enhancement of its growth initiatives.
Fortis has a solid balance sheet
Thirdly, Fortis has a solid balance sheet to support these growth ambitions. Close to 60% of its growth plan will be funded by cash from operations, with only 30% from debt and 10% from equity issuance.
As a utility, Fortis carries a lot of debt. However, a BBB+ credit rating enables a relatively low cost of capital. It prudently staggers its debt maturities, and most debt is at the asset level, rather than on a corporate level.
53 years of dividends
That brings us to our fourth point. Fortis has an incredible record of dividend growth. It pays a 3.2% dividend yield today. It just increased its quarterly dividend by 4%. That is its 53rd consecutive dividend increase! For context, Fortis’ dividend is up 63% in the past 10 years and 297% in the past 20 years!
Given that Fortis aims to grow by 7.5% annually, a 4% to 6% annual dividend growth target seems very reasonable. The dividend income returns are a nice offset against any stock volatility that might occur.
Sleep well at night holding Fortis long term
The final reason to hold Fortis in a volatile market is that it is a low-Beta stock. It only has a Beta of 0.44. This simply means that its stock is less correlated to the broader market. This is largely due to its simple, regulated business. People need power and gas for their homes and businesses. They don’t get to choose where that power and gas comes from.
Investors often flock to Fortis when the market declines. As a result, it tends to do better in bear markets. However, it may not see the same uplift of a bull market.
Yet, Fortis has still delivered very good returns over the lolonger termWhen you add in dividends and stock returns, Fortis has delivered a 12% total CAGR in the past five years, 11.9% in the past 10 years, and 9.9% over the past 20 years. Fortis is a great stock if you want an investment that you can hold, collect dividends, and sleep well at night.
