Among the top Canadian stocks I continue to come back to as top picks in this current environment, perhaps no company gets as much love as utility giant Fortis (TSX: FTS).
There are a myriad of reasons for this view. In this article, I’m going to dive into my base case as to why Fortis makes sense for most investor portfolios right now and where I see this stock headed from here. Indeed, as the above chart shows, Fortis stock has certainly been moving in the right direction of late.
Here’s why I think that direction of travel could continue for some time through July and far beyond.
Source: Getty Images
A business model worth getting behind
If there’s one thing I think most investors can agree on right now, it’s that there’s less to agree on. Levels of uncertainty remain stubbornly high among many investors, regardless of the direction the VIX points in.
Thus, companies with the most stable business models and robust balance sheets are likely to continue to outperform. Factor in a business model which revolves around providing essential products to retail and commercial customers across North America (most can’t go without heat or lights for long), and you have a highly sustainable and defensive investment worth considering.
Fortis’ extremely consistent top and bottom line growth rates over time have driven incredible upside for investors who have stuck with this name over the long term. I don’t see anything changing fundamentally on the thesis for this particular stock, and that’s why it remains my top pick for July.
A dividend growth model that’s worth buying
The other key factor I think can get overlooked with companies like Fortis is the dividend income these companies provide. As a regulated utility provider, Fortis is able to increase prices on a relatively consistent basis to its overall customer base. These increases are used to pay for capital upgrades, but also to the company’s long-term capital return program.
Over the long term, Fortis has become one of the best dividend stocks in the market, but not for its current yield. Rather, Fortis’ track record of raising its dividends annually for more than five decades straight sets the company far apart from many of its peers in terms of the stability and consistency of dividend growth over time.
So, for investors looking to lock in a dividend yield of 3.8% today (that could be a lot higher down the road), Fortis is certainly a top option to consider right now.
Where is Fortis headed from here?
I’m not going to pretend to have a crystal ball. But Fortis is one of those no-brainer, highly defensive stocks I think investors can hold in times of turmoil. And while tariff-related volatility in the market has tamed down as investors price in what they call the “TACO” (Trump always chickens out) trade, we’ll have to see what ultimately comes from a move toward isolationism from the U.S.
But for domestically focused utility companies like Fortis, these headwinds should be less prevalent. That’s what’s helped this stock outperform its peers thus far this year, and what I think could continue to drive outsized value moving forward.
