A Top Value Stock to Play a Second-Half Run

Fortis (TSX:FTS) stock is a low-risk dividend stock to buy while it’s historically cheap.

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With just a handful of trading sessions left in the month of June and the first half, Canadian investors may be wondering what may be lying on the road ahead. Indeed, the TSX Index had a fantastic first half (at least thus far), with the index up more than 4% year to date. While that kind of six-month return pales in comparison to that of the Nasdaq 100, which is up just shy of 20%, I view the rally in the TSX Index as more sustainable. The tech sector won’t be pulling the broader markets higher forever, even for those who believe we’re the artificial intelligence (AI) revolution has years to run (arguably, it does).

As valuations across the board contract, I view the TSX Index as prime for value investors seeking to score big discounts to intrinsic value — not to discount the opportunities south of the border, as there are many if you know where to look. However, I think the S&P 500 is starting to become slightly above fairly valued.

The TSX is full of great, neglected value names

Though not bubbly or absurdly priced by any stretch, I see the Canadian market as being better primed for a second-half run, especially if the U.S. presidential election brings about a volatility storm. Indeed, election years can introduce just a bit more worry.

Combined with potentially extended valuations and a period of seasonal sluggishness (selloffs tend to hit close to the midpoint of the second half), I’d argue TSX value plays would make for the best bets for investors looking to take risk off the table rather than add to it for a shot at greater gains over the near term.

Here are two value plays to get started if you’re looking for more of a risk-off play as stock markets get hot in the summer, perhaps too hot to handle for value-conscious folks.

Fortis: Deep value to play a second-half comeback

Fortis (TSX:FTS) is one of the well-run utility stocks you can’t go wrong with in almost any environment. Undoubtedly, the firm’s highly regulated, predictable cash flows pave the way for slow and steady earnings (and dividend) growth over the years.

So, whether it’s tough or smooth terrain that’s ahead in the second half of 2024, investors should expect a mid-single-digit dividend-growth rate each year as Fortis executes on growth opportunities while continuing to reward shareholders with consistent raises.

Indeed, a 4% annual raise may not seem like much amid inflation. However, as inflation returns to 2% (or below), such a growth rate would be better appreciated by risk-off investors. Additionally, Fortis stock’s yield is on the high side at 4.4%. For a stock that tends to yield closer to 3%, the swollen payout is appreciated.

A major reason the yield is a bit higher is because of the high-rate climate. High rates won’t last forever, especially if a few more rate cuts are coming in the second half. Either way, FTS stock is a low-risk bargain at 17.1 times trailing price to earnings. It’s cheap, with a swollen yield, with one of the widest moats out there.

Bottom line

While FTS stock has lagged the TSX Index, I simply don’t see it doing so forever, especially as the long-term rise of generative AI and electric vehicles drives energy consumption higher steadily over the next few years. As a transmission kingpin, Fortis is naturally poised to benefit, all while it seizes opportunities on the merger and acquisition front.

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 Joey Frenette has positions in Fortis. The Motley Fool recommends Fortis. The Motley Fool has a disclosure policy.

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