Income investing is all about building wealth. One of the most prudent and effective ways to go about this is to collect regular payments over time from battle-tested businesses with solid long-term growth prospects. The statisticians and market researchers back it up: Dividend accumulation is a critical component of total return, providing essential stability during volatile markets.

According to Standard & Poor’s, dividends are responsible for 44 percent of the S&P 500’s total return–the increase in value if all dividends were reinvested–over the last 80 years. During the last decade dividend income accounted for as more than 50 percent of total return.

Establishing a foundation for long-term wealth is not about simply loading up on the highest-yielding stocks you can find. It’s about buying businesses with the proven ability to sustain their payouts over time. Fortis Inc (TSX: FTS, OTC: FRTSF), Empire Company Ltd (TSX: EMP/A, OTC: EMLAF) and Enbridge Inc (TSX: ENB, NYSE: ENB) each boast enviable records of consistent dividend growth over the long haul. They are dominant players in their respective industries, all of which qualify as “essential” in meaningful ways.

Every portfolio needs ballast, and these three Canadian companies have proven their utility day-in, day-out.

Fortis holds investments in electric distribution utilities in Canada, Belize and the Cayman Islands. Subsidiaries generate electricity in New York and Belize. The company also has real estate interests, including hotels, in Atlantic Canada.

Fortis, which has raised its annual dividend for 37 straight years, the longest streak of any publicly traded Canadian company, demonstrates the case that stable and steady wins the wealth-building race. The share price held up amid the worst market slide in 80 years, buoyed by two subtle but important signals of the company’s strength amid the calamity of the third and fourth quarters of 2008.

During the fourth quarter of 2008, when all hell was freezing over around it, Fortis went to the equity market to raise CAD300.1 million, money is used to pay down debt. Despite the global economic downturn and capital market volatility, Fortis and its utilities have raised approximately CAD1.3 billion in the capital markets since late 2008.

It also helped that the stock was added the S&P/TSX 60 Index, a benchmark for funds with significant asset under management. Portfolio adjustments by institutions meant Fortis shares had built-in demand when other publicly traded companies were struggling to survive.

Fortis followed through on this good news by reporting record revenue for 2008, and 2009 became the 10th straight year with a new annual high. Since December 2007 Fortis has produced a total return of 8.5 percent in US dollar terms, trailing only slightly the S&P/Toronto Stock Exchange Income Trust Index’s 8.9 percent during the same time frame. On a price-only basis it’s down 1.8 percent.

Earnings per share (EPS), management’s favored metric to gauge execution on its “strategy of profitable growth,” grew 7.4 percent in the first quarter of 2010 to CAD0.58 (CAD100 million). Terasen Gas, which contributed approximately 73 percent (CAD73 million) of the overall total, reported earnings growth of 25.8 percent.

Terasen is the largest natural gas distribution company in British Columbia, the third-largest gas utility in Canada, and the largest natural gas distributor in the Pacific Northwest. The company also provides gas transportation services to wholesale customers, operates a liquefied natural gas (LNG) plant, and pipes propane products to select areas of the province. Fortis bought it in 2007.

Dividends paid per common share grew to CAD1.04 in 2009, up 4 percent from CAD1 in 2008. Last January Fortis announced a two-cent increase in the quarterly rate, from CAD0.26 to CAD0.28, an annualized rate of CAD1.12.

It enjoys stable relations with regulators, and DBRS boosted the company’s trend rating to “positive” in June. Fortis will announce second-quarter earnings August 4. We’ll have a full recap and add it to How They Rate coverage in the August issue of CE. Fortis sports a 4 percent yield, and the regular payout is eminently sustainable.

Empire Company Ltd sells food to Canadians. Its subsidiary, Sobeys Inc, owns or franchises more than 1,300 stores in every province across Canada under retail banners that include Sobeys, IGA, IGA extra, Foodland, Price Chopper and Thrifty Foods, as well as Lawtons Drug Stores.

When management reported results for the fiscal year and fourth quarter ended May 1, it also announced Empire’s 15th consecutive annual dividend increase, to CAD0.20 per share per quarter. It’s yielding a modest 1.5 percent at current levels, though it’s been remarkably stable amid the volatility of the last several years. While global indexes were reaching crisis lows in March 2009, Empire was making its way back above 50; it had bottomed in April 2008 south of 35. The stock price hit a 52-week high Thursday, continuing its pattern of higher lows and higher highs.

Empire reported fiscal 2010 operating earnings of CAD284.5 million (CAD4.15 per share), an 8.7 percent increase from 2009. The company used an increase in free cash flow driven by success at Sobeys to strengthen its financial position. Its various storefronts continued to grow revenue through the recession, notching another 3.3 percent increase in 2010 to CAD15.52 billion. Sobeys reported same-store sales rose 1.9 percent, while net debt-to-capital came down to 21.8 percent from 28.6 percent at the end of fiscal 2009.

Another world-class dividend workhorse, Empire Company is a solid long-term buy-and-hold candidate.

Enbridge Inc (TSX: ENB, NYSE: ENB) has paid a dividend for more than 55 years. The annualized dividend has grown from CAD0.0075 to CAD1.48 per share, an average of 10 percent per year. The payout ratio on a trailing 12-month basis is 59.9 percent, on the low end of management’s target range of 60 to 70 percent of earnings. 

Enbridge is Canada’s largest transporter of crude oil, with about 15,280 kilometers (9,500 miles) of pipeline, delivering more than two million barrels per day of crude oil and liquids.

It exports 69 percent of western Canadian oil production, or about 11 percent of the US’s daily imports. Close to 100 different types of commodities and fuels–including more than 20 types of refined products–move through its network.

Enbridge, which reports second-quarter results on July 28, has made a concerted effort in recent years to broaden its portfolio by investing in alternative energy projects. Enbridge, Enbridge Gas Distribution and FuelCell Energy (NSDQ: FCEL) opened what was described as the world’s first direct fuel cell-energy recovery generation power plant to operate in Canada. The Toronto facility produces 2.2 megawatts of “ultra-clean electricity,” enough power for approximately 1,700 residences. Management estimates the North American market represents 250 to 300 megawatts of opportunities for direct fuel cell-energy recovery generation systems.

The company recently announced a USD500 million investment in a 250 megawatt wind energy project in Colorado. Construction on the Cedar Point Wind Energy Project, approximately 80 miles east of Denver, is expected to be complete in late 2011. The project will deliver electricity to the Public Service Company of Colorado electricity transmission grid under a 20-year, fixed-price power purchase agreement.

Sitting just below a recent new high, the shares will likely pull back at some point during what’s likely to be a summer of choppy trading. Enbridge, however, has proven its ability to sustain a dividend over the long haul.

Exchange-Traded Ease

Exchange-traded funds (ETF) give you broad exposure to a particular theme with relative ease. For the one-stop shopper who’d rather play golf or feed the ponies every day than manage a stock portfolio these vehicles are suitable building blocks.

If you’ve put together a portfolio of high-yielding Canadian income trusts and corporations, an ETF such as iShares MSCI Canada Index Fund (NYSE: EWC) is a simple way to establish a broad play on Canadian growth, a one-stop shop for the world’s soundest banks, the maker of the ubiquitous BlackBerry devices, and what will soon be one of the biggest straight oil sands plays on the planet.

As longtime readers are aware, the Utility Forecaster way–as it is with Canadian Edge–is to construct and maintain a portfolio of solid businesses. We’d rather not pay someone else to do the choosing (and the churning). As a complement to Canadian income exposure, however, and as a convenient way to establish positions in Canada’s leading companies, this is one way to go, though with the good in an index fund comes the bad. Income investors will find little to like in the 1.4 percent yield and won’t enjoy the corrosive effects of even the relatively low ETF expenses.

Canada entered recession after all of its G-7 peers, its downturn was shallowest, and it has rebounded stronger than any other developed economy. Yet the Canadian dollar, despite the relative stability the economy supporting it continues to demonstrate, trades in step with growth sentiments. When risk appetite is on the rise, so is the loonie; when investors flee, it’s still to the cover of the US dollar.

The latest bout of fear has left the Canadian dollar below USD0.95. We could see a little more shake-out through the summer–economic data will continue to be mixed, and the crowd is still prone to overreact to the downside. The aftermath of panic-driven selling can be profitable for the opportunistic. Long-term fundamentals support the Canadian dollar’s continued strength

CurrencyShares Canadian Dollar Trust (NYSE: FXC) peaked at USD99.67 in mid-April. It never breached USD100 for the close, though the Canadian dollar did trade above parity for a brief moment in the spring. The ETF backed off to as low as USD93.01 in late May, and now trades around USD94.46. Global markets seem to be passing this latest fear fever, which drove investors to the perceived safety of the US dollar and the Japanese yen and out of “growth” currencies such as the loonie.

According to the Bloomberg Correlation-Weighted Currency Indices, for the last 12 months the Canadian dollar lags on New Zealand and Australia, having gained more than 10 percent relative to a basket of the world’s currencies. Year to date, the loonie is about 6 percent to the positive against the same basket, ahead of the US dollar and trailing only the Japanese yen, reflecting the recent rush to safety. In other words, the loonie is among the high-flyers when things look good, and it maintains elevation now when darkness looms.

Although it’s perceived as a barometer of global growth, Canada was the last of the old-school G-7 to enter recession and the first to emerge. This implies a level of stability. One major difference between it and the perceived safe havens–Japan and the US–is that Canada’s balance sheet is, in reality, strong. It entered the global crisis after a decade’s worth of balanced budgets. It boasts the lowest debt-to-GDP ratio among the G-7, and the World Economic Forum says its financial system is the world’s soundest.

Not only is it blessed with the second-largest estimated oil reserves on the planet. Its leaders have steered the ship of state in a way that will allow Canadians to enjoy the benefits of that wealth. Ottawa’s path out of the extraordinary measures it employed in concert with its G-20 peers is much cleaner than that of the US. A national health care system is already in place, mitigating the impact of an aging population, and there is flexibility within the budget to address concerns related to care for the elderly in the long term because its commitments abroad are, obviously, much less burdensome than their American neighbors’.

The Canadian dollar going to rally once global growth is solidly on track, and it’s going to maintain its strength relative to most of the world during difficult times. More correlated to oil than ever, it epitomizes Canada’s solid economic position here at the outset of the second decade of the 21st century.

iShares MSCI Canada Index Fund and CurrencyShares Canadian Dollar Trust are basically tools for traders rather than viable vehicles for income-oriented investors, though they can be useful as hedges in long portfolios.

Income investing is about identifying solid tortoises rather than jumping on the latest rabbits. Patience is the No. 1 byword. Making sure your portfolio is stocked with companies with demonstrated records of sustaining regular monthly, quarterly or semi-annual dividend payments is one way to ensure you ride out whatever volatility strikes the market in relative comfort–and with long-term wealth.