Whether you’re a seasoned investor or someone who is just starting out, chances are you’ve heard of Fortis (TSX: FTS), one of the most well-known utility stocks in Canada and most popular dividend growth stocks that investors buy and hold for the long haul.
Fortis is one of the most popular stocks for several reasons, including its stability and long history of paying growing dividends. However, just because a stock is popular or well-known as high-quality doesn’t automatically mean it’s always worth buying.
When considering any stock, it’s essential to think long term. The path to financial success involves identifying high-quality companies, purchasing them at reasonable prices, and holding them for years while allowing compounding to do the heavy lifting.
That’s why dividend growth stocks are some of the best to buy because they not only provide income but also offer financial strength and consistency over time.
However, one of the most common mistakes new investors make is starting with the stock price. Instead, before you even look at the value of a company, you need to decide first whether it’s even a high-quality stock worth owning in the first place.
Then, once you’ve identified a high-quality company, the next step is to assess valuation and determine if now is the right time to buy or if it should go on your watch list until a better entry point appears.
So, with that in mind, let’s look at whether Fortis stock is worth buying, and whether it’s worth buying today.
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Why is Fortis such a popular stock?
There are many reasons why Fortis is so popular, such as its reliability, resiliency, and track record of 50 straight years of dividend increases. And in order for Fortis to become a reliable stock that can consistently grow and distribute its earnings, it needs a well-diversified portfolio of essential operations.
So, it’s no surprise that Fortis is one of the largest regulated utilities in North America, with operations spanning Canada, the U.S., and the Caribbean.
Furthermore, since it provides electricity and natural gas to millions of customers, it’s a critical part of everyday life and the broader economy. That essential nature of its services is what makes Fortis so defensive.
Plus, in addition to the essential nature of its operations, Fortis is especially attractive due to its scale and diversification. With operations in several different regions, it isn’t overly reliant on one jurisdiction or regulator. That helps to reduce risk, while it also still gives Fortis plenty of growth potential.
Finally, the fact that its operations are regulated by governments means that Fortis’s future revenue, earnings, cash flow and even dividend increases are all highly predictable, which is why it’s such a dependable dividend growth stock, and one of the most popular investments on the TSX.
Should you buy the utility stock today?
Whether you should buy Fortis today depends largely on its valuation as well as your investment goals. For younger investors with a longer timeline and more willingness to take on risk, Fortis may not be the most exciting choice. Instead, you might prefer higher-growth opportunities or want to consider holding just a small position for stability.
On the other hand, for investors who are closer to retirement or those building a growing passive income stream, Fortis is one of the best stocks you can own.
As for whether it’s worth buying today, looking at Fortis’ current valuation, it’s not extremely expensive, but it’s not cheap either.
Currently, Fortis is trading at a forward price-to-earnings (P/E) ratio of 20.7 times, which is above its five-year average of 18.9 times. In addition, its forward yield of 3.5% is below its five-year average of 3.95%.
Therefore, while Fortis isn’t significantly overpriced in this environment, it is trading above its historical averages. So, although it’s one of the best stocks on the TSX to own, for most investors, the better move right now may be to keep it on your watch list and wait for a more attractive entry point.
