The Motley Fool

Fortis (TSX:FTS) Stock: Get a 4% Dividend Yield

Image source: Getty Images

For some stability in this uncertain world of financial markets, investors can consider buying some Fortis (TSX:FTS)(NYSE:FTS) stock today. The defensive dividend stock has essentially gone sideways for more than a year. It now trades with a decently attractive dividend yield of close to 4%.

Specifically, it has traded largely between $50 and $54 per share since August 2019. So, at close to the bottom of that channel, at about $51 and change per share, it’s a good spot to consider picking up some shares.

Fortis stock’s dividends, upside, and returns

Analysts are also bullish on the utility stock. 14 analysts have an average 12-month price target of $59.50 per share on the stock, suggesting 16% near-term upside potential. Throwing in the roughly 4% dividend, total returns of approximately 20% over the next year is entirely possible.

Longer term, the utility is growing by about 5-6% a year. So, you can expect returns of about 9-10% in the long run, coming from this growth and its dividends.

The 10 Best Stocks to Buy This Month

Click here to learn more!

Why Fortis is a defensive stock

Fortis is a regulated utility that generates highly stable earnings with stable growth. Its diversified electric and gas portfolio comprises 10 regulated utilities with 93% of transmission and distribution assets.

A testament to its high-quality earnings is its track record of 47 consecutive years of dividend increases. The solid stock also has below-average volatility. It has a very low recent beta of 0.05. In other words, theoretically, when the market rises or falls 1%, it should rise/fall only 0.05%.

Not surprisingly, Fortis is one of the top TSX dividend stocks that are trusted by retirees and income investors for its safe dividend and defensiveness.

The dividend stock’s growth outlook

Although Fortis’s previous CEO Barry Perry retired in the new year, the growth outlook of the utility won’t be much different. It’ll be similar over the next five years versus the past five.

Specifically, it’ll exhibit a rate base growth rate of about 6% and increase its dividend by about 6% per year. The growth will be supported by its 2021-2025 $19.6 billion capital plan and organic growth.


For its stability and solid dividend, Fortis stock tends to trade at a premium valuation. In the past 15 years or so, its normal valuation was about 19.6.

Its earnings held steady last year during the pandemic. Growth is expected to resume this year. As a result, the stock is attractively priced today. The relatively cheap valuation could lead to above-average returns of about 20% over the next year.

The Foolish takeaway

Conservatively assuming a 15% return over the next year from current levels and a 9% return for the following four years, a $10,000 investment in Fortis will transform to $16,233 in five years for just over 10% per year. This is not bad at all for a low-volatility, defensive dividend stock.

Fortis’s upcoming ex-dividend date will be sometime around mid-February. To receive the next quarterly dividend, make sure you own the stock before then.

A utility that I like better for the longer term is Brookfield Infrastructure. The dividend stock is fairly valued today and offers a yield of close to 4%. Interested investors can consider nibbling some shares today and buy more opportunistically over time.

Speaking of top defensive dividend stocks to own...

The 10 Best Stocks to Buy This Month

Renowned Canadian investor Iain Butler just named 10 stocks for Canadians to buy TODAY. So if you’re tired of reading about other people getting rich in the stock market, this might be a good day for you.

Because Motley Fool Canada is offering a full 65% off the list price of their top stock-picking service, plus a complete membership fee back guarantee on what you pay for the service. Simply click here to discover how you can take advantage of this.

Click Here to Learn More 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 Kay Ng owns shares of Brookfield Infrastructure Partners. The Motley Fool recommends BROOKFIELD INFRA PARTNERS LP UNITS, Brookfield Infrastructure Partners, and FORTIS INC.

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss an important event.

Iain Butler and the Stock Advisor Canada team only publish their new “buy alerts” twice a month, and only to an exclusively small group.

This is your chance to get in early on what could prove to be very special investment advice.

Enter your email address below to get started now, and join the other thousands of Canadians who have already signed up for their chance to get the market-beating advice from Stock Advisor Canada.