Fortis (TSX:FTS) has long been a staple in retirement and income-focused portfolios, known for its reliable performance and increasing dividends over the past 50 years. This impressive track record has earned it a reputation as a dependable blue-chip stock. But where could Fortis stock be in the next five years? Let’s break down its current position and explore the potential scenarios for its future.
Fortis today
At the time of writing, Fortis stock is trading at around $63 per share, with a blended price-to-earnings (P/E) ratio of 19.1. The stock currently offers a decent dividend yield of 3.9%, which is supported by a payout ratio of approximately 73% of adjusted earnings. Fortis’s ability to sustain dividends even during economic downturns is a key reason why many investors consider it a solid choice for long-term income generation. As a regulated utility, Fortis benefits from steady and predictable profits, even in turbulent market conditions.
However, to understand where Fortis might go in five years, we need to consider several potential scenarios based on historical trends and future assumptions.
Historical performance: What the past can tell us
Over the last decade, Fortis stock has experienced varying P/E ratios, ranging from a low of 16.3 to a high of 24.5. On average, the P/E ratio during this period has hovered around 18.9. Most recently, last year, the stock traded as low as a P/E of 16.5. These numbers give us a useful framework to project where Fortis might go in the future, assuming the stock continues to follow historical patterns.
Scenario #1: A conservative outlook
Let’s assume a conservative growth rate of under 5% per year for Fortis’s earnings per share (EPS) over the next five years. In a market correction scenario, if the stock’s P/E ratio drops to 16.5, the share price could be around $68 by 2030. While this represents modest price appreciation (around 1.5% per year), adding in the stock’s 3.9% dividend yield, potentially a dividend growing by 5% annually, could offer an estimated total return of 5.4% per year in this bear-case scenario.
Scenario #2: The normal scenario
In a more typical market environment, with Fortis achieving a P/E ratio closer to its historical average of 18.9, the stock could rise to just under $78 per share by 2030. This would imply a price appreciation of around 4.3% per year. With the dividend growing at a steady 5% annually, investors might see an overall return of about 8.2% per year in this scenario. This would be more in line with expectations for the stable blue-chip stock.
Scenario #3: The optimistic scenario
What if the market experiences a surge in optimism, pushing Fortis’s P/E ratio to 22.5 by 2030? In this bullish scenario, the stock price could climb to nearly $93 per share, representing an annualized price gain of around 8%. Adding in the dividend, investors could see a total return of roughly 11.9% per year — an impressive outcome for any investor seeking capital appreciation and income.
Is now the right time to buy?
Given that Fortis stock is currently fairly valued, the decision to buy depends on your investment strategy. For those eager to own a piece of this stable utility, a small purchase now might be appropriate. However, more cautious investors might want to wait for a 5-10% pullback before entering at a more attractive price point.
In conclusion, while Fortis’s future is not without its uncertainties, its solid dividend history, strong market position, and potential for growth in various market conditions make it a potential candidate to hold over the next five years.
