One of Canada’s premier dividend growth companies and one of the best Canadian stocks to buy today, Fortis (TSX:FTS) announced a 6.1% raise to its quarterly dividend on Tuesday. The raise is inline with company guidance in which it expects to raise dividends by an average of 6% through 2022.
The raise extends its dividend growth streak to 46 years, the second longest streak in Canada. Only Canadian Utilities (TSX:CU) and its 48-year streak tops Fortis’ impressive feat.
They are also on track to become Canada’s first ever Dividend Kings. These are companies that have raised dividends for 50 or more consecutive years. South of the border, there are already 27 Dividend Kings.
Along with its dividend raise, Fortis also announced a new five-year outlook and an increase to its capital expenditure plan. The new plan calls for $18.3 billion in spending between 2020 and 2024, up $1 billion from the previous plan.
When I first started buying stocks in Canada, Fortis was the very first stock I bought, for good reason!
Strong investments in regulated utilities
Of importance, almost all the capital spending will be directed to its regulated utility business. This is notable, as these assets provide stable and reliable cash flows. Through 2024, the company’s consolidated rate base is expected to grow by an average of 6.5% annually.
It also has ample room for expedited growth as its current guidance and CAPEX plan excludes potential expansion “of liquefied natural gas infrastructure in British Columbia; the fully permitted, cross-border, Lake Erie Connector electric transmission project in Ontario; and the acceleration of cleaner energy goals in Arizona.”
The company also left the door open to making strategic acquisitions. The last transformative acquisition came in 2016, when it purchased U.S.-based ITC Corp for US$11.3 billion. It would not be the least surprising if it made another big splash in the M&A market at some point in the next five years.
How is Fortis valued?
Over the next few years, analysts are expecting mid-to-single digit earnings growth. This is inline with the company’s rate base guidance.
At the moment, Fortis is trading inline with historical valuations. It is neither cheap, nor expensive but this is no surprise given its status as a large cap utility company. You won’t get rich quick with Fortis, but you can build wealth through stable growth and a dividend (3.25% yield) that is rising at a pace that far exceeds inflation.
Yesterday’s news was positive, yet there is nothing to get too excited about – it is par for the course, which is why we listed it as one of the best dividend stocks in the country.
Simply put, Fortis is one of the most reliable companies on the index. This is not a stock you time, it is the perfect buy-and-forget investment for retirees and conservative investors. Utility and Canadian telecom companies should be able to take advantage of a extremely low interest rate environment.