Fortis (TSX:FTS) stock has been on a great run in the past three months, surging around 10% in the timespan. Undoubtedly, interest rates are poised to fall further going into the new year, which should help the broader utility players fund generous dividend hikes and other cash-producing projects. Perhaps more importantly, however, is the potential multi-year catalysts (let’s say the next five years or so) that may just be able to help boring, traditional utility firms really make up for lost time by posting gains that may just top the TSX Index.
Even after the latest multi-month surge, shares of FTS are up a very modest 7% in the past five years. Even with dividends considered (4.2% yield at the time of writing), Fortis stock hasn’t really been a great bet, at least on a relative basis.
However, moving ahead, I think the environment could be conducive to much better gains. Lower rates, rising recession risks (and the associated rise in demand for the defensive dividend plays), and AI’s growing energy demand needs, I believe, are all potential bullish factors that could send FTS stock higher over the next five years, perhaps much higher.
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Fortis stock has had a run. But it’s still worth owning for the long haul.
Of course, some investors may view the name as more of a better buy on weakness. After all, chasing momentum is often the formula to take a big hit in your portfolio once momentum reverses course. In any case, shares are down close to 4% off 52-week highs, providing an opportunity for longer-term defensive dividend investors to punch a longer-term ticket before any multi-year trends can power new highs.
At writing, the name trades at a rather reasonable 18.7 times trailing price-to-earnings (P/E) to go with a fat 4.2% dividend yield. As a proven dividend grower with the ability to raise its payout by the single digits under almost any type of economic climate, I can’t say I’m ready to give up on the name just yet, especially as AI devices and electric vehicles (EVs) become more commonplace in the wild. Indeed, if you don’t have an AI-enabled (so-called edge) device or an electrified vehicle quite yet, you could be in for a major energy-hungry upgrade at some point in the future.
A five-year plan that could pay some pretty sizeable dividends
Either way, more electricity demand is a good thing for Fortis, which has an impressive five-year capital plan worth $26 billion in place. The plan is pretty ambitious and could help bring in many more dividend hikes. The firm stated that it would be a “low-risk” plan due to the regulated nature of the projects that the firm intends to pursue.
As the stock picks up traction, with a new plan in place, I think nibbling at a partial stake makes a bit of sense right here while it’s going for under $60 per share. At the end of the day, Fortis is one of the defensive dividends that can allow you to sleep very comfortably at night!
