For many Canadians, Toronto-Dominion Bank (TSX:TD) is among the top dividend stocks that make up a well-diversified income-producing portfolio. And for good reason. This major bank has produced consistent dividend income over a very long period of time while also providing investors with excellent capital appreciation upside over the long term, as the chart below shows.
That said, there may be other better options from a dividend (and particularly dividend growth) perspective. Indeed, Fortis (TSX:FTS) continues to be a stock I pound the table on for long-term investors looking to create a meaningful dividend portfolio over the coming decades.
Here’s why.
Source: Getty Images
Strong business model
In order for any dividend stock to maintain consistency over the long term, a strong business model is required. Investors will want to see not only cash flow stability but growth potential over the long term. And regarding these metrics, Fortis certainly checks all the boxes for me.
The company owns and operates 10 long-life utility transmission and distribution assets in Canadian and U.S. markets. The company serves a very stable clientele of more than three million customers, who continue to pay Fortis to keep the lights and heat on in any market environment.
Thus, for those concerned about recessionary risks, Fortis remains among the most defensive stocks to consider in this market. The company’s relatively low volatility (as represented by its beta) provides credence to the idea that the company will be able to continue increasing its dividend over time.
Fortis’s dividend just keeps growing
Perhaps Fortis’s biggest asset for investors is the company’s dividend status. A “Dividend King” with more than 50 consecutive years of dividend increases under its belt, Fortis continues to grow its distribution in line with its earnings over time. Again, given the company’s rock-solid business model, these distributions can reasonably be expected to grow in the 6% range for the foreseeable future. That’s what the company has done in the past, and there’s nothing to indicate this won’t continue over time.
Looking at the company’s recent results, it’s clear that Fortis is moving in the right direction. Surging electricity demand has led to strong share price appreciation (and a lower dividend yield than this stock usually sees, at around 3.9% right now). However, the company’s net earnings growth of 8% supports its continued dividend growth profile over the long term, and that’s something I think investors can bank on moving forward.
Why is Fortis the preferential option?
Canadian banking is also a very profitable business, and I have no doubt TD will continue to increase its dividend (when regulators allow) over the long term. However, Fortis’s business model is much more stable and secure. In this environment, that’s the option I think most investors are going to lean towards.
Accordingly, investors looking to pick dividend stocks to add to their retirement accounts or long-term holdings may want to consider adding a position on future weakness. Notably, Fortis hasn’t seen much weakness of late. But this is a stock I remain very bullish on as a buy-and-hold opportunity for the reasons cited in this piece.
