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Life is full of unknowns.

Will the Leafs win more than one playoff round this season? Beats me. Is the Bank of Canada done raising interest rates? Maybe, maybe not. Will Donald Trump spend any time in the slammer? Your guess is as good as mine.

But when it comes to investing, there is one thing that’s virtually certain: Shareholders of Fortis Inc. FTS-T will get a dividend increase every year.

I’ve owned Fortis personally for more than 20 years and also hold the stock in my model Yield Hog Dividend Growth Portfolio, and the company hasn’t let me down yet. It came through again on Sept. 19 with a 4.4-per-cent dividend hike, boosting its quarterly payout to 59 cents a share, or $2.36 annually. That translates into a yield of about 4.6 per cent based on the stock’s closing price of $51.59 on Friday.

In a world full of turmoil and uncertainty, Fortis has been a model of consistency.

This marks the 50th consecutive year that the St. John’s-based utility operator has raised its payout, and it almost certainly won’t be the last. At its recent investor day, Fortis extended its dividend growth guidance of 4 to 6 per cent annually by a year, to 2028. Dividend increases aren’t official until the board approves them, but half a century of dividend increases suggests the trend is your friend here.

From its beginnings as St. John’s Electric Light Company in 1885, Fortis has grown into a multinational electric and gas utility with $64-billion of assets spanning Canada, the United States and the Caribbean. In addition to being diversified geographically, the vast majority of Fortis’s operations are regulated, contributing to relatively predictable earnings and dividend growth.

Maurice Choy, an analyst with RBC Dominion Securities, calls Fortis “a cornerstone holding for investors seeking defensive exposure.”

But Fortis also knows how to play offence. In a note following the company’s investor day, Mr. Choy cited its new five-year capital spending plan of $25-billion (for 2024 through 2028), which is expected to drive compound annual growth of about 6.3 per cent in Fortis’s rate base – the value of assets on which a utility is allowed to earn a regulated return. Rate base growth, in turn, should support continued earnings and dividend growth.

The updated capital program also represents an increase of about $2.7-billion compared with the previous five-year plan (for 2023 through 2027), reflecting additional spending on projects such as grid modernization, reduction of coal-fired generation and the building of transmission lines to bring more renewable power online.

“In an environment where the majority of Canadian energy infrastructure companies have seen growth stagnate, FTS on the other hand continues to execute and unveil bigger numbers year after year,” Ben Pham, an analyst with BMO Capital Markets, said in a recent note to clients.

Despite all of its positive attributes, Fortis hasn’t escaped the damage that rising interest rates have inflicted on stocks – especially rate-sensitive companies such as utilities that borrow billions of dollars to finance their operations. In addition to increasing borrowing costs, higher rates also hurt dividend stocks by increasing investor demand for fixed-income securities such as government bonds and guaranteed investment certificates. To remain competitive with rising fixed-income yields, the yields on dividend stocks must also rise, which means their prices – which move in the opposite direction to the yield – must fall.

That’s precisely what has happened to Fortis. Since touching a record high of more than $65 in May, 2022, the shares have slumped about 20 per cent. Dividends have helped to soften the blow somewhat: The stock’s total return, which assumes all dividends were reinvested, was about negative 16 per cent over the same period.

Am I upset about this? A little bit, sure. But I prefer to look on the bright side: I can now purchase Fortis shares at a lower price, and receive a higher yield.

With that in mind, this week I added 15 shares of Fortis to my model Yield Hog Dividend Growth Portfolio, bringing the total to 190 shares. (View the complete portfolio online at tgam.ca/dividendportfolio.) The purchase consumed $793.05 of virtual “cash” in the model portfolio. I would have added some Fortis shares to my personal portfolio as well, but it is already my largest position.

One day, hopefully not too long in the future, interest rates will start to decline and the headwind from rising rates will turn into a tailwind. In the meantime, I’m happy to collect my rising dividends from this growing, well-diversified utility.

E-mail your questions to jheinzl@globeandmail.com. I’m not able to respond personally to e-mails but I choose certain questions to answer in my column.

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Tickers mentioned in this story

Study and track financial data on any traded entity: click to open the full quote page. Data updated as of 19/04/24 4:52pm EDT.

SymbolName% changeLast
FTS-T
Fortis Inc
+0.97%52.89

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