I’ve long thought utility companies generally make great long-term investments. Like other companies in capital intensive industries, utility giants tend to lay out large sums up-front to develop transmission and distribution networks, generating growing cash flows over time based on those capital investments that tend to pay disproportionate profits for investors.
That’s a business model that many in the market have relied on for long-term growth. And with the return of many utility sector-specific ETFs performing about as well as the market over most multi-decade windows, that means these overlooked utility stocks may be more than just overlooked from time to time — they may be straight-up undervalued.
I’ve long pounded the table on Fortis (TSX:FTS).
Here’s why I’d put my next $1,900 to work in this name moving forward.
Source: Getty Images
A defensive business model with plenty of growth upside
Defensiveness in any market environment is great. Sure, ultra-bullish investors will outperform their more conservative counterparts during high-growth bull markets fueled by euphoria. We’ve seen a few of those play out in recent years.
But when times get tough, there’s a reason why many investors flock to companies like Fortis. This leading North American regulated electric and gas utility giant has produced very steady cash flow over time.
This cash flow and earnings growth profile has been very robust. The company’s most recent results showed 8.7% earnings growth to $1 per share (up from $0.93 per share in the same quarter the year prior). Fortis has continued to increase its dividend over time, passing on more of these earnings and cash flow gains to investors, which I continue to like.
A long-term dividend stock worth holding
In addition to Fortis’s strong upward stock price appreciation potential (shown in the chart above), this is also a company worth considering from a dividend perspective. With a current yield of 3.7% and a track recored of more than 50 consecutive years of dividend increases, investors looking for a true total return play in this market can’t go wrong owning Fortis here, in my view.
Fortis continues to invest in an attractive growth pipeline of projects and continues to be a leader in the world of environmental, social, and governance initiatives with a strong analyst outlook. Finding such a company trading at a price-to-earnings multiple of 20 times in this market is difficult, but that’s possible with owning Forits here. At current levels, this stock looks like a screaming buy to me.
