Where Will Fortis Stock Be in 5 Years?

After 50 straight years of increasing dividend payments can Fortis stock continue to expand its operations and grow shareholder value?

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HIGH VOLTAGE ELECRICITY TOWERS

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It’s no secret that utility companies are some of the best go-to stocks to buy if you want a safe and reliable long-term investment. And while there are a handful of high-quality utility stocks on the TSX for investors to choose from, there’s no question that one of the best is Fortis (TSX:FTS).

Fortis is a massive $26 billion stock, with $66 billion of assets and operations diversified all over North America. It provides gas and electricity services, operates in 18 different jurisdictions and serves roughly 3.5 million customers.

Furthermore, it’s one of the most reliable utility stocks in Canada, with one of the lengthiest and most impressive track records.

For example, Fortis has increased its dividend for 50 years straight, which just goes to show how robust its operations are and why it’s one of the top stocks in Canada to buy and hold for the long haul.

Even some of the highest-quality companies can experience a down year or be impacted by a recession. So, the fact that Fortis has proven time and again it can operate no matter how the economy is performing makes it one of the most impressive stocks to consider today.

How has Fortis performed recently?

In the last five years, we’ve dealt with an unprecedented global pandemic, surging inflation and rapidly increasing interest rates, all of which have created significant headwinds for businesses in North America.

However, while many stocks have understandably struggled at some point or another in the last five years, Fortis stock has unsurprisingly continued to grow its revenue, earnings and, of course, its dividend.

It’s worth noting that higher interest rates have impacted Fortis. As interest rates rise, it causes Fortis’s debt to become more expensive to service, and it hurts the share price as yields rise, which naturally causes the prices of dividend stocks to fall. However, while higher interest rates have impacted Fortis, the effects have been minimal, as you would expect from such a robust stock.

Aside from the impacts on its share price and marginal impacts on its expenses, Fortis has continued to grow its revenue and normalized earnings per share (EPS) throughout the last five years.

In fact, over the past half-decade, Fortis’s revenue has increased at a compounded annual growth rate (CAGR) of 6.5%. Meanwhile, its earnings before interest, taxes, depreciation and amortization (EBITDA) increased at a CAGR of 6.1% and its normalized EPS increased at a CAGR of 4.2%.

This impressive and consistent growth allowed the dividend to increase at a CAGR of 5.2%, which helped to protect investors’ capital and continue to earn them an attractive return, even as severe economic headwinds caused many stocks to sell off.

Where will Fortis stock be in five years?

Although it’s nearly impossible to predict what the economy might do over the next five years, one of the best features of investing in Fortis stock is that you have a good idea of what to expect.

Currently, Fortis is in the midst of a multi-year, $25 billion investment plan to continue expanding its operations and transitioning to cleaner energy. Fortis expects these investments will allow it to increase its rate base at a CAGR of 6.3% through 2028.

Furthermore, it also expects these investments will allow it to increase the dividend at a CAGR of 4-6% through 2028, which is right in line with how Fortis has performed over the past five years.

So, if you’re looking for a high-quality and reliable long-term investment that you can have confidence in no matter what the state of the economy, Fortis currently trades roughly 16% off its 52-week high and offers a yield of approximately 4.5%.

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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