Most readers who follow my content will know how bullish I’ve been on Fortis (TSX:FTS) over the course of the past decade.
It turns out this view has been a very profitable one, for those who put capital to work and let it sit there. Over the course of the past decade, Fortis’ dividend has roughly doubled, while its stock has headed up and to the right in an impressive fashion. Indeed, looking at the stock chart above and the impressive move Fortis has made over the past five years (exclusive of dividends), this is a stock that long-term investors have benefited from owning.
Here’s why I think the next five to ten years will be no different for long-term investors.
A business model most companies are envious of right now
As a regulated utilities giant, Fortis earns the vast majority of its revenue from stable and growing cash flows tied to its core residential and commercial electric and natural gas utilities operations.
However, with the rise of artificial intelligence and surging demand for electricity via utilities giants like Fortis, this entire sector has seen a massive boost in terms of its forward demand expectations. So long as these demand expectations remain sky-high (and I don’t see any reason why they’d change), this is a stock that should see strong growth tailwinds moving forward.
With a strong dividend profile I’ll dive into in a minute, Fortis has been able to return capital to shareholders at an amazing clip. It’s this shareholder capital return model that I think is so compelling right now, and with more investors seeking defensive growth in this current market, I wouldn’t be surprised to see Fortis stock bid up higher in the quarters and years to come.
Dividend growth matters a great deal to Fortis investors
Fortis’ current dividend yield of 3.5% is reasonable, and I’d argue certainly beats bonds and other fixed income assets right now thanks to the company’s aforementioned growth and capital appreciation upside.
However, I think what’s even more compelling about Fortis stock is its dividend growth profile. As mentioned, investors who bought Fortis stock a decade ago have roughly doubled their dividend income. Growing its dividend at a 6%-7% clip over the long-term, that means that roughly every decade or so, investors should see their distributions double. For those with a multi-decade time horizon, this can mean much more meaningful income in retirement (that can match or exceed the growth of inflation).
At the end of the day, I think that’s what matters. With more focus on inflation and concerns around slowing growth, investing in a company like Fortis that can provide inflation-matching income and growth that can eclipse the overall market makes this a stock to continue buying.