TFSA Passive Income: Is Fortis Stock a Buy Now?

Fortis has increased the dividend annually for 50 years.

| More on:
The sun sets behind a power source

Source: Getty Images

Key Points

Retirees and other dividend investors are searching for cheap dividend-growth stocks to add to their self-directed Tax-Free Savings Accounts (TFSAs) focused on generating reliable tax-free passive income. Fortis (TSX:FTS) has one of the best track records of dividend increases and now trades at a discount to its recent highs. Investors who missed the big rally in the stock after the 2020 market crash are wondering if Fortis is now undervalued again and good to buy.

Fortis stock price

Fortis (TSX:FTS) trades for close to $52.50 at the time of writing compared to the 12-month high of around $62 and as much as $65 at the peak in 2022.

The pullback is primarily due to interest rate hikes in Canada and the United States. Fortis operates $66 billion in utility assets and has a $25 billion capital program. The company uses debt to fund part of the growth initiatives. As such, the rising cost of borrowing reduces profits and cuts into cash that would be available for distributions.

Investors have also likely shifted to Guaranteed Investment Certificates (GICs) that now offer rates that are comparable to the dividend yield on dividend stocks like Fortis.

Upside?

At this point, the stock is probably oversold. The company delivered solid profit growth last year, with adjusted earnings per share rising to $3.09 from $2.78 in 2022. Fortis expects the capital investments to increase the rate base from $37 billion in 2023 to more than $49 billion in 2028. The resulting rise in revenue and cash flow should support planned annual dividend increases of at least 4%.

Fortis has additional projects under consideration that could get added to the capital program, and the company isn’t afraid to make strategic acquisitions to drive growth.

Is FTS stock a buy?

Volatility should be expected in the near term until there is a clear sign from the central banks that interest rates are headed lower. If inflation remains sticky and interest rates stay elevated, there could be more downside for the stock.

That being said, Fortis already looks cheap, and investors get paid a decent 4.5% dividend yield at the current share price. If you have some cash to put to work in a buy-and-hold TFSA, Fortis deserves to be on your radar today.

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.

The Motley Fool recommends Fortis. The Motley Fool has a disclosure policy. Fool contributor Andrew Walker has no position in any stock mentioned.

More on Dividend Stocks

Payday ringed on a calendar
Dividend Stocks

Passive Income: How Much Should You Invest to Earn $1,000 Every Month?

These three monthly-paying dividend stocks can help you earn a monthly passive income of $1,000.

Read more »

Payday ringed on a calendar
Dividend Stocks

This 6% Dividend Stock Pays Cash Every Month

Can a 6% dividend yield help you build a monthly retirement income? An investment made right can help you build…

Read more »

Dividend Stocks

3 Dividend Stocks to Double Up on Right Now

Some of these dividend stocks will take longer to recover than others, but they'll certainly pay you to stick around.

Read more »

TFSA and coins
Dividend Stocks

TFSA Passive Income: How Much to Invest to Earn $250/Month

Want to earn $250/month of tax-free passive income? Here are four Canadian dividend stocks to look at buying in your…

Read more »

stock analysis
Dividend Stocks

Meta Is Now a Dividend Stock, but This TSX Stock Is a Better Buy

Social media giant Meta is now a dividend payer but a TSX stock is a better buy for its 156-year…

Read more »

TFSA and coins
Dividend Stocks

TFSA Passive Income: 2 Top Canadian Dividend Stocks for Retirees

These stocks offer great yields and have increased their dividends for decades.

Read more »

Happy Retirement” on a road
Stocks for Beginners

2 TSX Stocks That Could Help Set You Up for Life

Looking for some of the best TSX stocks to add to your portfolio? Here's a duo to consider that can…

Read more »

Retirement plan
Dividend Stocks

Is Dollarama a Great Stock for Retirement Planning?

Here’s why I think Dollarama is an amazingly reliable stock for retirement portfolios.

Read more »