The utility stocks have been roaring higher amid volatility caused by Trump’s tariffs. For a steady bond proxy like Fortis (TSX:FTS), it’s no wonder why the price of admission has gone higher of late. It’s one of the few glimmers of predictability in such an uncertain time.
And while it’s good to be optimistic about progress on the trade war front, I still think it’s a mistake not to be prepared for “sticky” tariffs that take away from the economy for a longer duration of time. In any case, FTS stock’s 12% surge year to date made it intriguing to a wide range of investors, from dividend seekers to those seeking a bit of shelter from the volatility and even momentum chasers.
With Fortis stock in breakout mode, the big question is whether it’s a good time to buy, as technical strength looks to take it towards the $70 level. Undoubtedly, even with strong past-year gains of 20% in the books, Fortis still doesn’t look all too expensive for the type of steady, recession-resilient single-digit growth you’re getting.
For those looking to buy the name and stick around for the next six years, I think there’s a chance to do a bit better than TSX Index. And if Trump tariffs concentrate pain in the U.S. stock market, perhaps FTS stock could fare well against the U.S. indices, and still-high valuations threaten to set the stage for a lost year of returns. In any case, utility stocks are in, and high-tech is out, as investors rotate back into the value trade and away from the higher growth names lifted by the artificial intelligence tailwind over the past two years.
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Fortis’s steady growth plan is worth getting behind
As for Fortis’s long-term game plan, it looks incredibly sound and resistant to most macro headwinds. The company is betting big on less-risky projects that are virtually recession-proof. The firm is in the early innings of its $26 billion five-year capital plan (it’ll span from 2025 to 2029), which management believes should drive a mid-single-digit compound annual growth rate (CAGR) of around 6.5%.
That’s solid and will pave the way for more proportional annual dividend hikes for investors looking to get a strong raise in the coming years. If the stock market is destined for a few lost years (or a lost decade), I view Fortis as a fantastic pick right here. It’s a highly regulated, wide-moat utility play that can easily continue hiking its payout through the nastiest of recessions.
Slightly pricier but still worth owning
At the time of writing, shares go for 20.2 times trailing price to earnings (P/E) to go with a 3.64% dividend yield. That’s slightly on the pricier side, with a yield that’s a few basis points lower than where it stood for most of the past two years. Either way, I think the premium multiple and lower yield shouldn’t deter value investors who seek to do well through volatile periods. Nobody knows if the current market turbulence will see the emergence of a bear market.
Either way, I’d say it’s best to prep for the worst as one hopes for the best. In the next six years, I think Fortis will be quite a bit higher than where it’s sitting today. If I had to place a bet, I’d say the next six years will be better for the utility than the last six.
