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

Make a choice, path to success, sign
Dividend Stocks

The TFSA Blueprint to Generate $3,695.48 in Yearly Passive Income

The blueprint to generate yearly passive income in a TFSA is to maximize the contribution limits.

Read more »

hand stacks coins
Dividend Stocks

3 Ultra-High-Yield Dividend Stocks You Can Buy and Hold for a Decade

These three high-yield dividend stocks still have some work to do, but each are in steady areas that are only…

Read more »

senior man and woman stretch their legs on yoga mats outside
Dividend Stocks

TFSA: 2 Canadian Stocks to Buy and Hold Forever

Here are 2 TFSA-worthy Canadian stocks. Which one is a good buy for your TFSA today?

Read more »

calculate and analyze stock
Dividend Stocks

This 5.5% Dividend Stock Pays Cash Every Single Month!

This REIT may offer monthly dividends, but don't forget about the potential returns in the growth industry its involved with.

Read more »

Silver coins fall into a piggy bank.
Dividend Stocks

How to Use Your TFSA to Earn up to $6,000 Per Year in Tax-Free Passive Income

A high return doesn't mean you have to make a high investment -- or a risky one -- especially with…

Read more »

path road success business
Dividend Stocks

2 High-Yield Dividend Stocks to Buy Hand Over Fist and 1 to Avoid

High yields are great and all, but only if returns come with them. And while two of these might, another…

Read more »

Man holds Canadian dollars in differing amounts
Dividend Stocks

This 7% Dividend Stock Pays Cash Every Month

A high dividend yield isn't everything. But when it pays out each month and offers this stability, it's worth considering!

Read more »

young people stare at smartphones
Dividend Stocks

GST/HST “Vacation”: Everything Canadians Need to Know

The GST/HST "vacation" is a little treat for the holidays, along with a $250 payment. What should you do with…

Read more »