Fortis Inc. (TSX:FTS) is a defensive utility stock with an exemplary history of dividend payments and consistent shareholder returns. Not surprisingly, Fortis stock has performed really well in recent history.
But what does 2025 have in store for this top-notch utility stock? Let’s explore.
Fortis stock: A story of dividend growth
Throughout its history, Fortis stock has been a reliable source of dividend income for investors. In fact, the company has a 51-year history of not only paying a dividend, but growing it every year. This has made it extremely valuable for income-seeking investors. And we can expect this to continue in 2025 and beyond. The company’s latest dividend increase was in September 2024 – an increase of 4%. On top of this, management extended its 3% to 6% annual dividend growth guidance to 2029.
New avenues of growth
In 2025 and beyond, we can expect to see increasing demand from retail customers such as data centres. Fortis is preparing for this and continues negotiations with different potential customers. According to management, we can expect to hear something on these negotiations in 2025.
At this time, Fortis is seeing significant service requests for data centres. Should these come to fruition, it would result in energy demand that would make current growth projections too modest.
Fortis’ capital spending plan is $5.2 billion for 2024 and $26 billion for the 2025 to 2029 time period. This plan is driven by investments related to resiliency of the network and growth at Fortis Alberta. It’s also related to the company’s long-range transmission plan, which aims to ensure the transmission system is reliable, economic, and complaint for the next 20 years.
These investments are low risk and highly executable, with nearly all being related to regulated growth and only 23% of them on major projects.
Interest rates affect Fortis stock
Before I close off, I’d like to touch on the macro environment that affects Fortis stock. One of the macro issues that greatly affects it is interest rates. Utility companies are greatly affected by the level of interest rates. This is because the industry is highly capital intensive, and therefore, utility companies carry a heavy debt load on their balance sheets. And Fortis is no different.
But the company has taken steps to improve its balance sheet and therefore lower its risk. With a debt-to-total capitalization ratio of just under 60%, Fortis remains sensitive to changes in interest rates. So, if rates fall further, that would be good for Fortis stock. But if rates climb higher, the opposite would be true.
The bottom line
As Fortis embarks on its ambitious capital spending plan, the company will also focus on lowering costs and energy efficiency.
Although Fortis stock has done well over the last few years, it remains on track to continue this performance. I like that it’s a utility stock, as I have a defensive bias right now. I also like the reliably growing dividend that Fortis continues to provide. Lastly, I like the opportunities that Fortis is being presented.
