There are few, if any, stocks on the market that can offer as much defensive appeal as utility stocks. One of the often-mentioned investments in that class is Fortis (TSX:FTS). But does that frequency make Fortis stock a viable option for investors?
Let’s look at the case for buying, selling, or just holding Fortis stock right now.
The case for buying
Fortis is one of the largest utility stocks on the market. The $66 billion behemoth boasts 10 operation regions that blanket Canada, the U.S., and the Caribbean. Collectively, the company provides utility services across both electric and gas elements to 3.4 million customers.
Prospective investors should keep in mind why utilities like Fortis stock are great defensive picks.
Fortis provides services to its customers, for which the company is compensated with a recurring revenue stream. That revenue stream is backed by long-term regulated contracts, which often span decades in duration.
This means that Fortis generates a stable revenue stream that is largely immune to market fluctuations and volatility.
It also means that Fortis can continue to provide investors with a juicy quarterly dividend. As of the time of writing, the yield works out to an appetizing 4.36%. Even better, Fortis has provided annual upticks to that dividend for 50 consecutive years without fail.
That factor alone makes Fortis stock a compelling option to consider for any well-diversified portfolio.
The case for selling
As compelling as Fortis stock is to some investors, some investors may be tempted to look elsewhere for gain, particularly in the shorter term.
As of the time of writing, over the trailing one and two years, Fortis stock trades down 3% and 8%, respectively. Over the same period, the overall market has fared better, posting gains of just shy of 2%.
Still, other investments on the market have posted double-digit gains during that period and offer a higher yield than Fortis. One such example is Enbridge (TSX:ENB), which also boasts a defensive moat. By comparison, that stock is up 13% over the trailing 12-month period while offering an insane 7.58% yield.
Adding onto the case to sell, we have rising interest rates. Utilities are capital-intensive businesses that are reliant on borrowing to help fund growth.
With interest rates climbing, growth-focused investments become more expensive. By extension, it means that Fortis’s streak of slow growth may extend out a bit longer.
The case for holding
There’s no argument that Fortis stock is a stellar long-term investment option. And current investors who may not be ready to buy more or sell Fortis stock might be better suited to hold the stock for now.
This provides the best of both worlds to investors. You can hold an existing position in Fortis and enjoy that quarterly dividend and the defensive appeal it provides. In some ways, Fortis can be seen as a buy-and-forget type of investment in this case.
And with 50 consecutive years of dividend increases and guidance for several more years of increases, that could be a very viable option.
Finally, let’s talk about growth. As noted above, Fortis hasn’t shown much growth in its stock price over the past two years.
But that doesn’t mean Fortis isn’t investing in growth initiatives. Fortis has historically been fairly aggressive when it comes to expansion. More recently, the company has shifted away from big acquisitions to transitioning over to renewables and upgrading existing facilities.
Final thoughts on Fortis stock
No stock is without risk, and the decision to buy, sell or hold Fortis stock varies with each investor. What Fortis does offer investors is a reliable business model that is one of the most defensive on the market and a tasty dividend.
For many investors, myself included, that’s enough to make Fortis part of every well-diversified, long-term portfolio.
