According to Investopedia, a blue chip stock is “issued by a large, well-established, financially sound company with an excellent reputation”. They have “dependable earnings, and usually pay dividends to investors”.
To me, Fortis Inc. (TSX:FTS) is the epitome of TSX blue chip stocks. Here’s why.
A TSX stock with a dependable dividend
When I look at blue chip stocks, the first thing I’m interested in is its dividend. This is because a big reason to invest in these stocks is for reliable dividend income. With Fortis stock, we can get that and more.
In fact, Fortis has a 50-year history of not only paying out a dividend, but also of growing this dividend. This is no small feat and it deserves recognition. Because it is this predictability that has allowed Fortis’ shareholders to rely on the stock and sleep soundly at night.
In the last 20 years, Fortis has increased its annual dividend by 354% to the current $2.26 per share. This equates to a compound annual growth rate (CAGR) of 7.9%. Looking ahead, management announced that they have extended their dividend growth guidance of 4% to 6% through to 2028 (prior guidance was until 2027).
Conservative business
Fortis is a $27 billion utility giant with a diverse geographic footprint and asset mix. This means that the company has a revenue profile that’s regulated. In turn, this translates into steady, secure, and predictable revenue. These are qualities that are highly valuable – qualities that make Fortis stock a stress-free buy.
In the five years ended 2023, Fortis has grown its net income by more than 30% to $11.5 billion. This equates to a compound annual growth rate (CAGR) of 5.6%. Also, its operating cash flow increased 32% to $3.5 billion, for a CAGR of 5.8%. In its latest quarter, earnings increased 5% to $459 million and earnings per share (EPS) increased 2.2% to $0.93.
Strong cash flows supported by a strong balance sheet and steady growth
While utility companies typically hold higher debt balances, Fortis’ leverage continues to be well managed. It’s total capitalization ratio of 56% is lower than its peer group. Also, it’s backed by strong, predictable cash flows.
Looking ahead, these cash flows should continue to grow, supported by continued population growth and rate base increases. Fortis’ $25 billion five-year capital plan is expected to increase the rate base from $37 billion in 2023 to $49.4 billion by 2028 – that’s an increase of 33.5%.
Beyond this five-year plan, other opportunities exist to extend and expand growth. These include further expansion of the electrical grid in the U.S. to facilitate the interconnection of cleaner energy and LNG infrastructure in B.C., as well as grid resiliency investments, just to name a few.
The bottom line
I’d like to close by reiterating that Fortis is the ultimate no-stress TSX blue chip stock. Its business, its financials, and its growth plans all have an overriding element of predictability and conservatism. The utility operates in a defensive industry, after all.
All of this makes it the TSX blue chip stock to buy.
