Utilities are some of the best defensive stocks for any portfolio. There are plenty of reasons for that view. Today let’s take some time to talk about why Fortis (TSX:FTS)(NYSE:FTS) belongs in your portfolio.
Why Fortis and why now
Fortis is one of the largest utilities on the continent, with 10 operating regions across Canada, the U.S., and the Caribbean. Collectively, the utility boasts a whopping 3.4 million customers across its electric and gas segments.
The overwhelming bulk of Fortis’ business stems from regulated assets bound by long-term contracts. Those contracts, known as power-purchase agreements (PPAs) provide Fortis with a stable and recurring source of revenue. Additionally, PPA contracts span one or more decades in duration, which translates into Fortis being an incredibly defensive investment. This backs the view that Fortis belongs in your portfolio.
One of the main criticisms of utilities is that they are boring investments that lack any growth prospects. When it comes to Fortis, that view couldn’t be further from the truth. Unlike many of its peers, Fortis has taken an aggressive stance toward expansion. The company has acquired increasingly larger peers over the years, resulting in Fortis becoming the behemoth it is today.
Fortis has more growth and income potential
While Fortis’s stance toward growth by acquisition is great, prospective investors should take note of yet one more growth driver. The company has earmarked billions towards a capital improvement program that will both update and transition facilities towards renewable energy. This is a massive cost for the company, but one that will literally pay dividends over the next decade.
Speaking of dividends, Fortis offers a quarterly dividend with a yield of 3.6%. While the yield offered is not the highest on the market, it is stable and growing. To put that earnings potential into perspective, a $25,000 investment in Fortis will provide $900 in income during the first year. Reinvesting those dividends until needed will provide even greater potential.
If that weren’t enough, prospective investors should know that Fortis has amassed an incredible 47 consecutive years of dividend increases. The company also plans to maintain that cadence until at least 2025 with an average annual bump of 6%.
Fortis belongs in your portfolio
Fortis is the complete package for nearly any portfolio. The company has a wide defensive moat, stable and recurring revenue stream, and pays a handsome dividend. Furthermore, Fortis’s investment into green energy, while committing itself to continue the practice of annual dividend increases is impressive.
In short, Fortis belongs in your portfolio, now and tomorrow. Buy it, and hold it.
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This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.
The Motley Fool recommends FORTIS INC.