Fortis (TSX:FTS) is up 10% in the past six months. Dividend investors who missed the bounce are wondering if FTS stock is still undervalued and good to buy for a self-directed Tax-Free Savings Account (TFA) or Registered Retirement Savings Plan (RRSP) focused on dividend growth and total returns.
Fortis stock price
Fortis trades near $60 per share at the time of writing. The stock reached $65 in 2022 before an extended decline that took the share price as low as $50 later that year. Since then, the share price has traded in a range between $51 and $62.
Fortis is a utility company with $69 billion in assets located across Canada, the United States, and the Caribbean. The businesses include power-generation facilities, natural gas distribution utilities, and electricity transmission networks. These assets primarily generate rate-regulated revenue. This means cash flow tends to be predictable and reliable, which helps management plan for capital projects and dividend distribution to shareholders.
The company has a good track record of driving growth through strategic acquisitions and development projects. Interest rates might continue to decline in the coming year, giving utility companies an opportunity to start looking at new takeover targets. Lower financing costs might also enable Fortis to move ahead with additional capital projects that it has under consideration but not yet given the green light.
Fortis is currently working on a $26 billion confirmed capital program that will boost the rate base from $38.8 billion in 2024 to $53 billion in 2029. As new assets are completed and go into service, the resulting increase in revenue and cash flow should support planned annual dividend increases of 4-6% over five years.
Fortis just raised the dividend by 4.2% for 2025, supported by solid results in the latest quarter and through the first nine months of 2024. Fortis earned an adjusted $420 million in Q3 compared to $411 million in the same period last year.
The board has increased the distribution for 51 consecutive years, making Fortis one of the top dividend-growth stocks on the TSX. Investors who buy Fortis stock at the current price can get a dividend yield of 4%.
Risks
The recent win by Donald Trump in the U.S. presidential election is driving bond prices lower, pushing yields to levels not seen for several months. Markets are concerned that Mr. Trump will implement broad-based tariffs on goods entering the United States to fund his planned tax cuts. This could reignite inflation, which could force the U.S. Federal Reserve to pause rate cuts.
Fortis uses debt to fund part of its growth program. The rise in interest rates that occurred in 2022 and 2023 is largely to blame for the drop in the share price. If markets think the central bank will put rate cuts on hold, utility stocks could see renewed pressure.
Time to buy Fortis?
Investors should expect some near-term turbulence, but Fortis remains a solid pick for a buy-and-hold portfolio focused on dividend growth. If you have some cash to put to work, this stock deserves to be on your radar.
