Fortis (TSX:FTS) has increased its dividend annually for decades while delivering stellar total returns for its shareholders. New investors are wondering if FTS stock is still good to buy for a self-directed Tax-Free Savings Account (TFSA) or Registered Retirement Savings Plan (RRSP) portfolio focused on dividend income and long-term capital gains.
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Fortis share price
Fortis trades near $72.00 at the time of writing. The stock is up about 18% in the past year, extending a recovery from the pullback that occurred in 2022 and 2023.
Fortis has been around since 1885, and is headquartered in St. John’s, Newfoundland and Labrador. The utility giant owns $75 billion in assets and employs 9,600 people spread out across Canada, the United States, and the Caribbean. Businesses include power generation facilities, electric transmission networks, and natural gas distribution utilities.
Fortis grows through a combination of strategic acquisitions and organic projects. The company hasn’t made a large purchase for several years, but continues to expand the asset base through its development program. In fact, Fortis is working on $28.8 billion in capital projects that will raise the rate base by a compound annual rate of about 7% through 2029. As the new assets are completed and go into service, the boost to cash flow should support planned annual dividend increases of 4% to 6% over five years.
Fortis raised the dividend in each of the past 52 years, so investors should feel comfortable with the guidance. Nearly all of the revenue comes from rate-regulated assets. This means cash flow tends to be predictable, which is one reason the company is able to plan capital investments and project dividend growth far into the future.
Investors who buy FTS stock at the current level can get a dividend yield of 3.5%. Fortis offers a 2% discount on stock purchased using the dividend reinvestment plan (DRIP). That benefit adds up over time for investors who take advantage of the drip to harness the power of compounding.
A $10,000 investment in Fortis 30 years ago would be worth about $345,000 today with the dividends reinvested.
Risks
A sharp rise in interest rates would be a headwind for Fortis, as it was in 2022 and 2023 when the Bank of Canada and the U.S. Federal Reserve aggressively increased interest rates to fight inflation. Fortis uses debt to fund part of its capital program, so the jump in debt expenses can cut into profits and reduce cash available for dividend payments.
The U.S. is expected to reduce interest rates in 2026. Canada will likely keep rates at the current level after the series of cuts it made in 2024 and 2025. A jump in inflation, however, could force the central banks to sit on current rates for longer, or even raise rates again. In that scenario, Fortis investors could see the share price come under pressure.
The bottom line
Near-term turbulence in the broader market is expected due to the high valuation and ongoing uncertainty on tariffs. That being said, Fortis remains an attractive pick for a buy-and-hold portfolio focused on dividends and long-term total returns. Weakness in the stock would be an opportunity to add to a position.
