There’s no doubt that one of the best stocks you can buy on the TSX both for reliability and dividend income is Fortis (TSX:FTS), the $31 billion utility stock.
It’s no secret that the utility sector consists of stocks with a tonne of resiliency, perfect for shoring up your portfolio. However, while you can consider many top utility stocks to improve the defensiveness of your portfolio, there’s no question that Fortis is the best of the best.
Not only is it effectively 100% regulated by governments, ensuring that its income is reliable and predictable, but it’s also well-diversified with 3.5 million electricity and gas customers spread across 10 different jurisdictions in Canada, the U.S., and the Caribbean.
However, just because it’s one of the best and most reliable dividend stocks you can own doesn’t necessarily mean it’s worth buying in this environment.
So, if you own Fortis in your portfolio or have the stock on your watchlist, let’s consider whether it’s worth buying, holding, or selling in 2025.
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Is Fortis stock worth buying right now?
Fortis is one of those stocks that, no matter what the market’s doing, is almost never worth selling. It might not always be the best time to buy, but with its defensive business model and ultra-reliable dividend, it’s the kind of stock you can count on for the long haul.
Whether it’s a buy or a hold depends on valuation, but if you already own it, there’s little reason to let it go.
For example, over the last decade, Fortis stock has earned investors a total return of 127%, which is a compound annual growth rate (CAGR) of more than 8.5%. That would be a solid and consistent return for any stock, but especially one of the most reliable businesses you can own. Furthermore, going forward, it continues to have compelling growth potential.
Investing in growth
In fact, Fortis is planning to spend roughly $26 billion to upgrade its operations from 2025 to 2029. These upgrades include things like connecting more renewable generation to the grid as it prepares for additional electrification. It’s also looking to replace some of its aging assets to maintain reliability as well as expand its infrastructure to support load growth as data centres and AI continue to become more popular.
Fortis expects these investments to help its rate base grow at a CAGR of 6.5% from 2024 through 2029. And as its rate base grows, it plans to continue increasing its dividend each year.
For example, Fortis just increased its dividend in the fourth quarter of 2024 by 4%, marking 51 straight years of dividend increases, showing why it’s one of the best dividend stocks in Canada and why it’s a stock you’ll never want to sell.
Therefore, although its yield is sitting just shy of 4%, over the next five years, it plans to increase the dividend by 4% to 6% annually.
And since it continues to generate more earnings each year, the dividend remains sustainable, even as Fortis stock constantly increases it. In fact, it constantly keeps its payout ratio between 75% and 80% of its adjusted earnings per share.
Is the utility stock overvalued in the current market environment?
Fortis isn’t necessarily overvalued, but it’s not exactly a bargain either. In the current market environment, it may not be the best stock to buy right now, and I’d lean toward calling it a hold. With that being said, with ongoing uncertainty, you could still justify buying it, especially if you’re looking to shore up your portfolio for the long haul.
Fortis will continue to grow, protect your capital, and steadily increase its dividend, making it a solid choice for conservative investors. Plus, while it’s not cheap, its forward price-to-earnings ratio of 18.8 times is slightly lower than its five-year average of 18.9 times.
So, if you’re considering buying Fortis stock today, it ultimately comes down to your personal preferences and investment goals.
If you’re looking for a high-growth stock as the economy begins to rebound, there are better options. However, if you want stability, reliable income, and long-term capital preservation, Fortis is easily one of the best defensive stocks on the TSX.
