Fortis Stock Is a Great Buy in 2023

Defensives like Fortis will be in focus in 2023.

| More on:
High pressure wire tower at sunset at dusk

Image source: Getty Images

TSX utility stocks saw major drawdowns, as interest rates rose rapidly last year. Higher rates made Treasury yields more attractive, making bond proxies — utilities — less appealing. But as we might see the rate hike cycle slowing by mid-2023, it’s time to put utility stocks on our watchlists.

What’s next for Fortis stock?

Canada’s largest utility stock Fortis (TSX:FTS) lost 25% between August to October 2022. While that’s a normal drawdown for a growth stock, it’s a massive value erosion for utilities. But FTS has seen a decent up move of late and has recovered 16% since October.

If you are okay with relatively lower returns and value stability, Fortis is an apt bet. Stocks like FTS might underperform broader markets in the short term, but its stable dividends and the less-volatile stock have beaten broader markets in the long term.

To be precise, FTS stock has returned 50% in the last five years and 140% in the last decade, including dividends. In comparison, the TSX Composite Index has returned 26% and 60% in the same period, respectively.  

Utilities like Fortis grow their earnings very slowly relative to broader markets. In the last decade, its per-share earnings increased by 4%, compounded annually. However, some riskier options, like tech stocks, grow their earnings quite rapidly compared to this. And that’s why tech stock substantially outperforms utilities in bull markets. So, if you have a higher risk appetite, growth stocks, tech, or biotech names might be suitable bets for you instead of utilities.

Earnings and dividend stability    

Fortis operates as an electric and gas utility and serves over three million customers in Canada, the U.S., and the Caribbean. It generated almost the whole of its profits from regulated operations, facilitating stable financial growth. Unlike tech or other risky sectors, utilities have stable cash flows in almost all economic cycles. And that’s why Fortis has increased its shareholder payouts for the last 49 consecutive years through years of recessions and even the pandemic.

And it’s not just Fortis; many utilities have such long payment histories because of their stable earnings. For example, peer Canadian Utilities (TSX:CU) has increased its dividend for 50 consecutive years.

Fortis intends to raise its dividend by 5% annually through 2027. This dividend growth visibility also stands strong in these uncertain times. Its low-risk business operations and earnings stability will drive this dividend growth in the long term.

Moreover, utilities pay a significant portion of their profits to shareholders as dividends. So, while other sectors pay out around 20% of their earnings, utilities give away more than 60% of their profits as dividends. Fortis’s payout ratio was 53% in the last 12 months, while Canadian Utilities’s was 81%.    


FTS stock saw a steep fall last year amid its rich valuation. However, it is currently trading 20 times its earnings and looks relatively fairly valued. It might not see a significant recovery soon, as rate hikes continue, at least in the first half of 2023. But the downside also looks limited, as the damage has already been done. Its stable dividends and less-volatile stock make it an appealing stock in volatile markets.

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.

The Motley Fool recommends Fortis. The Motley Fool has a disclosure policy. Fool contributor Vineet Kulkarni has no position in any of the stocks mentioned.

More on Dividend Stocks

edit Person using calculator next to charts and graphs
Dividend Stocks

Better Buy: Fortis Stock vs Enbridge

Fortis stock and Enbridge are top dividend stocks on the TSX today. Which stock is better buy for safe dividend…

Read more »

Canadian Dollars
Dividend Stocks

How to Make $1,500 in Passive Income 4 Times a Year

Blue-chip TSX stocks such as Enbridge can enable investors to create game-changing wealth over the long term.

Read more »

Dividend Stocks

TFSA: How to Easily Turn $10,000 Into $500/Year of Passive Income

You don't need to be a stock market expert to turn $10,000 into a $500 of tax-free passive income. Here's…

Read more »

protect, safe, trust
Dividend Stocks

Worried About a Recession? 2 TSX Blue-Chip Stocks to Protect Your Capital

If you fear a recession coming on soon, here are two blue-chip Canadian stocks to add to your portfolio for…

Read more »

Silver coins fall into a piggy bank.
Dividend Stocks

New TFSA Investors: 2 Top TSX Stock to Create a Self-Directed Retirement Fund

Top TSX dividend stocks are now on sale for new TFSA investors.

Read more »

money while you sleep
Dividend Stocks

Worried About the Market? 2 Dividend Stocks That Let You Sleep at Night

Here's why Restaurant Brands (TSX:QSR) and Enbridge (TSX:ENB) are two top dividend stocks to buy in this uncertain market right…

Read more »

money cash dividends
Dividend Stocks

How 1 Absurdly Cheap Stock Can Generate $100 in Monthly Passive Income

You can generate $100 or more in monthly passive income from one high-yield stock trading at an absurdly cheap price…

Read more »

Retirees sip their morning coffee outside.
Dividend Stocks

How I’d Invest $1000 in February to Make Easy Passive Income

Looking to earn some extra passive income in February but don't have much cash? Build an easy portfolio with these…

Read more »