Should You Invest in Fortis Stock Right Now?

With interest rate increases now looking like they’re in the rearview, here’s why Fortis stock could be one of the best to buy now.

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When it comes to a massive, well-known, blue-chip stock like Fortis (TSX:FTS) there are a tonne of advantages to owning it.

As most investors know, utility stocks are some of the safest and most reliable companies you can buy. In addition, these businesses are often high-quality dividend stocks.

It’s essential, though, to understand what you’re getting with Fortis. Just because it’s a high-quality company and one of the top stocks in Canada doesn’t mean it offers the same potential as other top-notch companies.

For example, an impressive tech stock will offer much more capital gains potential. However, it likely won’t pay a significant dividend.

So, while Fortis may be one of the best dividend stocks you can buy for the long haul, it may not be a stock for everyone, especially younger investors with a higher risk tolerance.

For investors who are interested in adding a reliable dividend payer to their portfolio or just shoring it up during these uncertain times, Fortis is certainly one of the best you can consider.

But considering the state of the economy today, is now the best time to buy Fortis stock?

Is now an ideal time to buy Fortis stock?

When you put your hard-earned money to work, it’s essential to buy stocks you can hold for the long haul. And considering that Fortis is so reliable and one of the least volatile stocks on the market, assuming you’re buying the stock for the long run, there is never really a bad time to buy the stock.

A rising rate environment caused significant headwinds for the share price. However, even over the last few years, as interest rates were rising rapidly, the stock fell less than 25% at its worst point in October 2022 before immediately starting to recover. Today, it trades roughly 10% off its all-time high.

Now, though, with interest rates appearing to have peaked and with Fortis still trading off its highs, it looks like an excellent time for investors to initiate or build a position in the stock.

Not only is there still a tonne of uncertainty in the market, making a reliable stock like Fortis ideal, but if interest rates start to decline it could begin to see a significant rally.

Lower interest rates lower the cost of capital for Fortis, which would help improve its margins. In addition, though, as yields fall naturally the price of high-quality dividend stocks like Fortis rise.

It’s essential to invest for the long haul

Despite an environment that looks promising for Fortis stock in 2024, it’s essential that if you’re looking to buy the utility stock, you’re planning to hold for the long haul, especially since it’s impossible to predict what will happen with the economy this year.

Fortunately for investors, just like its short-term outlook, Fortis’s long-term potential looks compelling as well.

Right now, Fortis is in the midst of a significant, years-long growth plan where it’s spending billions on utility energy infrastructure investments. Fortis expects that these investments will allow it to grow its dividend by 4-6% per year through 2028.

Fortis’s plans for growth and its expectations to raise the dividend at an attractive and consistent pace shouldn’t be surprising. After all, it’s increased its dividend for an unbelievable 50 straight years now.

Plus, on top of that, the dividend, which has a current yield of roughly 4.3%, has a payout ratio of just 75% of its earnings per share. Therefore, it certainly looks safe, especially for a low-risk utility stock like Fortis.

Finally, while it trades off its highs, Fortis is undervalued. In fact, right now, it trades at a forward price-to-earnings ratio of just 17.4 times, below its five-year average of 19.3 times.

So, if you’ve been considering adding Fortis stock to your portfolio, now looks like an excellent time to take a long-term position.

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 Daniel Da Costa has no position in any of the stocks mentioned. The Motley Fool recommends Fortis. The Motley Fool has a disclosure policy.

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