Ten years ago, investors who chose to invest their retirement capital in Fortis (TSX:FTS) stock could have slept soundly every night during the past decade. Their capital would have doubled, and they would have received an 84% total dividend raise on the dividend aristocrat during the period.
Fortis is an electric and gas utility with $66 billion worth of assets serving the Canadian, United States and Caribbean Islands markets. It has cultivated a proven track record of consistent dividend growth and steady capital gains over the past 50 years – a feat only outdone by Canadian Utilities Corp’s 52-year dividend growth streak.
But it’s not just the dividend that matters on Fortis stock. A $1,000 investment in the utility stock could have more than doubled your money over the past decade.
A decade of growth: Fortis stock’s total return performance since 2014
Over the past decade since January 2014, a $1,000 investment in Fortis stock could have grown to $2,600 today, including dividend reinvestments, representing a strong 159% total return, or a 10% compound annual return over the decade. A similar investment in the broader TSX could have grown your capital to $2,000 today.
FTS stock outperformed the broader market by nearly 60% this past decade.
What powered Fortis’ success over the past 10 years?
Organic business growth through well-planned investment programs, accretive acquisitions, especially of U.S. utilities – including a US$4.3 billion deal for UNS Energy in 2014 and US$11.8 billion acquisition of ITC Holdings in 2016 – and consistent dividend growth, powered Fortis stock’s respectable returns over the last decade.
Fortis runs a resilient, regulated business that generates highly predictable cash flows, even during recessions. The business enjoys some relative immunity from economic downturns, and management’s well-executed long-term capital investment programs have been increasing Fortis’ revenue base over time, and expanding its recurring cash flow generation capacity.
Capital gains contributed about half the total return, and dividends completed the job.
Dividends played a key role in compounding investor returns on FTS stock during the decade. The company raised its quarterly dividend by 84% from $0.32 per share for the first quarter of 2014 to $0.59 for this quarter in 2024, and averaged an annual dividend growth rate of 6.6% per annum.
The company remains upbeat about its dividend growth plans following 50 years of consistent annual dividend raises. In the current 2024-2028 largely internally funded capital investment budget, Fortis plans to inject $25 billion into the business over the next five years, grow its revenue base at a compound annual growth rate (CAGR) of 6.3% from $36.8 billion in 2023 to $49.4 billion by 2028, and sustain a 4% to 6% annual dividend raise during the period.
Beyond numbers: The true value of a Fortis stock investment
Rising interest rates and inflationary pressures in North America (which have been tamed) didn’t bode well for the highly leveraged utility with regulated prices. Fortis stock has traded largely sideways over the past three years. However, the true value of a Fortis stock investment is in the long-term stability of capital, and the promise of growing regular dividends.
Investors in FTS stock can afford to sleep well at night knowing that their capital is less volatile than other equity investments, and their dividend cheques may receive regular bumps each year. The utility stock is a commendable reliable investment for generational wealth creation purposes.
Time to buy?
Fortis stock is a solid choice for long-term investors looking to build stable retirement portfolios. The business is valued at 14 times forward free cash flow today – half its market cap-to-free cash flow multiple seen in 2022.
Its plans to completely retire coal-powered power generation plants by 2032 extend the utility’s relevance well into a green future. Meanwhile, its current five-year capital investment program could sustain 4% to 6% annual dividend growth rates over the next half decade.
A new investment in FTS could earn a 4.3% dividend yield for 2024.
Potential risks to watch include extreme weather conditions that keep reappearing with increasing frequency, increasing competition, and a tight regulatory environment that may limit the forecasted growth rate.
I’m bullish on Fortis stock’s long-term potential as a successful retirement investment. That said, diversifying your portfolio across other stocks and asset classes could lower total investment risks and further enhance your portfolio’s chances of delivering the desired investment goals.
