Cash earns a zero rate of return, but you can put it to work by investing in dividend stocks. Storing cash provides financial safety to many, except it also loses value when inflation is high, like today. People avoid the stock market for fear of losing cash but forego the propensity to earn with total avoidance of risk.
For instance, your $10,000 today could compound to $15,814.84 in 10 years, including quarterly reinvestment of dividends, if the yield is 4.61%. If you extend the holding period to 20 years, and the dividend yield remains constant, the money could grow further to $25,010.92. The stock in this example is Canadian Utilities (TSX:CU), the TSX’s only Dividend King. It earned the lofty status by raising its dividend for 51 consecutive years.
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Why a Dividend King?
Income investors, including retirees living off dividends, turn to Dividend Kings for capital protection and growing payouts. Stocks in this elite group are reliable passive-income providers. Their share prices fluctuate or aren’t immune to market volatility, but income streams flow continuously.
Raising dividends every year since 1972 is an incredible feat for Canadian Utilities. The $10.57 billion utility and energy infrastructure company holds the longest record of annual dividend increases of any TSX or Canadian publicly traded company. Its regulated and long-term contracted investments assure sustainable earnings and dividend growth.
Essential services
CU’s comprehensive solutions are essential services. The Utilities segment involves electricity and natural gas transmission, distribution, and international operations. The second core segment is Energy Infrastructure, which includes energy storage, energy generation, industrial water solutions, and clean fuels. The last is Retail Energy (electricity and natural gas retail sales and whole-home solutions).
The global rate base has grown to $14.9 billion following years of continued investments in utility assets. Today, the highly contracted and regulated earnings base serves, as the foundation for sustained dividend growth. According to management, the company will invest $3.1 billion in regulated utilities from 2023 to 2025.
It will also allocate $800 million for growth projects or new growth platforms in energy infrastructure during the same period. The capital-investment plan should increase earnings and cash flows significantly while creating long-term value for shareowners.
A staple in an investment portfolio
Every investment portfolio needs a staple, and Canadian Utilities is always a top-of-mind choice. Cash flow and dividends are recurring, because their regulated utilities are a solid base or source. In 2022, the story was the same, despite the economic circumstances and uncertainties. CU’s adjusted earnings climbed 12% year over year to $655 million.
The bottom line here is that CU is a defensive, low-risk asset for risk-averse investors. Don’t expect much from price appreciation, because the stock won’t fly high. Based on market analysts’ forecasts, the high price target in one year is $43 (+10%). The current share price is $38.95 (+7.58% year to date).
Overcome loss aversion
Dividend investing is one way to reach your long-term financial goals or build retirement wealth. People with idle cash should consider taking some level of risk. The best option to be free of the loss-aversion feeling is to invest in a Dividend King like Canadian Utilities.
