Better Than Fortis: This Utility Stock Pays 4.5%

Fortis Inc (TSX:FTS)(NYSE:FTS) is a great investment, but there are better options out there if you’re looking for a higher yield.

| More on:

Fortis (TSX:FTS)(NYSE:FTS) is a top dividend stock that you can safely put away in your portfolio for years, probably even decades. You can count on it to deliver recurring and growing dividend payments while also steadily rising in value over the years. And with a low beta of close to zero, Fortis isn’t a very volatile stock to hold, which is important, especially during a pandemic or recession. Year to date, shares of Fortis are down just 2%, while the TSX has declined by closer to 3%. And during the March market crash, the TSX dipped much lower than Fortis, falling close to 35% while the utility stock didn’t even reach a 25% decline.

Stability is important, and that’s what makes Fortis a popular buy with income investors. It’s an ideal stock to just buy and hold. Over the past five years, the stock has produced returns of more than 35% for its shareholders. However, the one area where dividend investors can do a bit better is in the yield. With a 3.6% dividend yield, it’s not the highest that investors could be earning today from a utility stock.

A better option for dividend investors: Emera

If you’re priority is recurring dividend income, Emera (TSX:EMA) is likely going to be a better stock for you. It’s also a utility stock, and while it’s performed slightly worse this year, down around 4% so far in 2020, it pays investors a much higher dividend yield at 4.5%.

Both Fortis and Emera have raised their dividends in recent years.

Fortis currently pays shareholders a quarterly dividend of $0.4775, and that’s up over 40% from quarterly payments of $0.34 five years ago. That averages out to a compounded annual growth rate (CAGR) of just over 7% per year. Emera, meanwhile, pays its shareholders a quarterly dividend of $0.6125. Five years ago, its payments were $0.40 and would go on to rise by more than 53% for a CAGR of 8.9%. Not only does Emera pay a higher dividend today, but it’s increased its payouts at a higher rate in recent years.

However, there’s no guarantee that trend will continue in the future. In their most recent dividend increases, Fortis hiked its payouts by 6.1%, while Emera raised its payments by 4.3%. Without a large delta between Fortis’s and Emera’s recent dividend hikes, it seems like a fair assumption to make at this point that unless one of these stocks drastically falls in price or their businesses radically change, Emera will continue providing investors with a stronger dividend for the foreseeable future.

These are two very comparable companies

Like Fortis, Emera also is a fairly low-volatile stock with a beta of 0.21. And both companies also offer similar diversification to investors, operating in Canada, the U.S., and the Caribbean. The major difference is that Fortis is the bigger company of the two, with $56 billion in assets while Emera has $32 billion in assets. Either stock could be a great buy no matter how you look at it. But if you want to squeeze out a higher dividend, you’re better off investing in Emera today.

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.

Fool contributor David Jagielski has no position in any of the stocks mentioned. The Motley Fool recommends FORTIS INC.

More on Dividend Stocks

dividends can compound over time
Dividend Stocks

Want a 7% Yield? The 3 TSX Stocks to Buy Today

These TSX stocks are offering high yields of over 7%, making them attractive for investors seeking steady passive income.

Read more »

how to save money
Dividend Stocks

The Smartest Dividend Stocks to Buy With $200 Right Now

These smartest dividend stocks can consistently pay and increase their dividends in the coming years, irrespective of the macro uncertainty.

Read more »

Electricity transmission towers with orange glowing wires against night sky
Dividend Stocks

3 Utility Stocks That Are Smart Buys for Canadians in November

These utility stocks benefit from regulated businesses and generate predictable cash flows that support higher dividend payouts.

Read more »

Start line on the highway
Dividend Stocks

Invest $10,000 in This Dividend Stock for $600 in Passive Income

Do you want to generate passive income? Forget the rental unit! This option will save you the mortgage yet still…

Read more »

Senior uses a laptop computer
Dividend Stocks

1 Reliable Dividend Stock for the Ultimate Retirement Income Stream

TD Bank (TSX:TD) shares are way too cheap with way too swollen a yield for retirees to pass up right…

Read more »

A worker drinks out of a mug in an office.
Dividend Stocks

Is Brookfield Infrastructure Partners a Buy for its 4.75% Yield?

Brookfield Infrastructure Partners (BIP) has a 4.75% dividend yield. Is it worth it?

Read more »

TFSA (Tax-Free Savings Account) on wooden blocks and Canadian one hundred dollar bills.
Dividend Stocks

Where to Invest Your $7,000 TFSA Contribution

The TFSA is attractive for investors who want to generate tax-free passive income.

Read more »

The TFSA is a powerful savings vehicle for Canadians who are saving for retirement.
Dividend Stocks

TFSA Investors: 3 Dividend Stocks Worth Holding Forever

These TSX stocks have the potential to grow their dividends over the next decade, making them top investments for TFSA…

Read more »