Fortis (TSX: FTS) is a compelling choice for long-term investors seeking stable returns with a blend of growth and income. As one of Canada’s largest and most reliable utility companies, Fortis offers a strong track record of delivering consistent dividends and sustainable development, making it an excellent pick for December 2024 and beyond.
Here’s why I think Fortis remains a top option long-term investors may want to consider to generate outsized total returns over the next decade or two.
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Utilities stocks matter (again)
Companies like Fortis that provide a relatively “unsexy” product like electricity and natural gas typically don’t get very much love in the market. That certainly makes sense, when one thinks about all the other high-growth businesses investors have to choose from right now.
However, the company’s operating model, which is focused on regulated electricity and natural gas distribution from its 10 subsidiaries in North America, continues to provide extremely stable cash flows and allows investors the opportunity to gain exposure to what could actually be a relatively high-growth space over time.
The utilities sector has seen a surge in investor interest over the past year, as expectations of future electricity demand continue to surge. Mainly tied to the rise of AI, investors are making a broad bet that higher power generation demand should bode well for utilities companies like Fortis, who will have greater pricing power over time. And while the company is mostly focused on a large residential clientele base, the company does have significant exposure to industrial and commercial properties as well, meaning this catalyst is one investors ought to consider.
Financials look strong
Of course, the question is whether Fortis is seeing these expected trends flow through to its cash flow statement. In recent quarters, it appears this has indeed been the case.
The company has continued to reinvest in its core business, with plans to invest up to $25 billion in infrastructure projects between 2024 and 2028 to solidify its positioning in key markets. These investments will largely be made in improving the company’s transmission and distribution networks to ensure reliability and efficiency.
The thing is, with scheduled rate increases over time, Fortis expects to deliver around 4%–6% dividend growth over the next four years. That’s impressive, and it could extend the company’s streak of more than 50 consecutive years of dividend increases toward the 55 mark.
As broader economic activity picks up, with AI and other electrification efforts driving outsized growth for companies like Fortis, this is a stock I think could see major upside from here, in addition to its strong dividend profile. Thus, this is a top total return stock I think long-term investors may want to consider at current levels.
