A tax refund from the Canada Revenue Agency (CRA) is a special gift that can hopefully make it into your RRSP. It’s the reward for all of your hard work during the year and for your effort at tax time. Well, that’s the way I see it anyway. So, it makes sense to protect and preserve this money as best as you can. One way to do this is by investing it into your RRSP for tax-sheltered returns.
Fortis (TSX:FTS) is a TSX stock to buy with your CRA funds for capital preservation, income, and long-term growth.
Consistent, predictable returns to safeguard and grow your CRA funds within your RRSP
As a $26 billion utility company with a geographically diversified set of assets, Fortis is naturally defensive. The list of defensive attributes is long. But let me zero in on a couple.
Firstly, on top of being geographically diversified, Fortis also has a diversified list of assets, such as transmission assets, distribution assets as well as cleaner energy fuel assets and renewable energy assets. This diversification reduces its exposure to one specific business and smooths out earnings.
Secondly, the fact that Fortis is in the regulated gas and electric utilities industry guarantees a level of return for the company.
So, how does this dynamic play out in Fortis’s results? Well, it plays out really nicely. For example. Fortis stock has an average annual shareholder return of 11% in the last 20 years. Also, Fortis has a 49-year history of dividend increases. The latest dividend increase was a 5.6% increase this year, and the company expects dividend growth in the range of +4-6% until 2027. Thus, Fortis is a TSX stock that’s a very solid option to park your CRA funds in.
This TSX stock is in it for the long haul — like your RRSP
I’ve touched upon the fact that Fortis has some assets in the clean energy fuel and renewable energy businesses. These assets are indicative of Fortis’s intention to participate in the journey toward renewable, clean energy. In fact, Fortis is already well on its way. Since 2019, the company has reduced its emissions by 28%. And Fortis has set out its plans for the future, with targets to reduce emissions by 50% by 2030 and 75% by 2035.
In order to achieve this, Fortis has been divesting of its coal assets. In fact, Fortis has been actively removing these assets, and adding renewable assets in their place. Last year, Fortis closed the last unit of its coal-fired electric plant at the San Juan-generating station in New Mexico, removing 170 megawatts of coal-fired generation.
By 2035, Fortis’s plans are for its business to be entirely focused on energy delivery and renewable energy. As we can see, this shift is well under way today. Buying Fortis stock in your RRSP, allows you to participate in a tax-free way.
Valuation on Fortis stock is looking good
We wouldn’t want to buy Fortis stock if the valuation was not right. You see, protecting your CRA funds is of utmost importance. This includes sheltering the funds from tax within your RRSP. It also means getting into a stock at reasonable valuations. So, Fortis stock has declined 8.5% since its 2022 highs. On a three-year basis, it’s up 6.7%.
In terms of valuation, Fortis stock is trading at 20 times this year’s expected earnings and 19 times next year’s expected earnings. This is reasonable in my view, given Fortis’s strong history of shareholder returns, its stability and its predictability. Also, Fortis’s dividend yield is currently a very generous 3.82%. Invested in your RRSP, this represents a nice tax-sheltered annual return for your CRA funds.