The steady utility stocks aren’t just a great way to place defence anymore. Undoubtedly, their dependable dividends, predictable earnings growth profiles, and lower degree of volatility have made some of the Canadian utility names the go-to bond proxies for when markets get really choppy. Indeed, if you’ve got a defensive part of your portfolio, odds are it’d be that much better with a steady utility player at its core.
From Fortis (TSX: FTS) to Canadian Utilities, it can literally pay growing dividends to stick with the boring, but stable names. More recently, though, the utility players have become that much more interesting, thanks in part to their role in modernizing the grid for the AI age.
Of course, the top utility stocks are more of the behind-the-scenes beneficiaries from the AI revolution. And while more data centre deals get inked, I do think that the broader utility scene could go from boring, dependable, and steady to growthy, and even a bit exciting.
With wonderful hard assets and very long track records of dividend raises each and every year, I think there’s more to the utility stocks than just a way to batten down the hatches. Arguably, a name like Fortis might make sense to own, even if you’re not looking to defend against the next big bear market.
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Fortis stock is more than just reliable; it’s a steady grower
As various AI innovators on the cutting edge look to invest considerable sums in GPU while consuming an obscene amount of energy, there are ways further downstream to play such a spending boom. After a nearly 9% year-to-date gain, shares of FTS are really starting to heat up.
With runway to grow south of the border (think ITC Holdings) and a 4–6% annual dividend growth forecast that’s pretty much a lock until the end of 2030, perhaps FTS stock could be the play that does well, regardless of what the next major move is for markets.
What’s most striking about Fortis is that it’s growing at a very respectable rate for such a defensive stock. Indeed, there’s quite a bit of earnings visibility over the next three to four years. With 7% in annualized growth as a baseline and the potential for some AI-driven surprises, I do view the slight premium on shares as more than worth paying.
The premium price tag is well-earned
Of course, it’s not all too often you see a steady dividend payer like Fortis going for more than 20 times trailing price-to-earnings. Today, the name goes for just shy of 23 times trailing P/E, which is undoubtedly on the higher end, while the dividend yield, now at 3.3%, is on the lower end. Still, with several good quarters under its belt and significant momentum going into its coming quarterly reveal, I’d not be afraid to add to a position after the latest 3–4% dip.
Sure, it’s hardly a correction, and expectations have only grown higher in recent months, but for investors who want predictability, near-guaranteed annual dividend raises, and the ability to compound wealth steadily through the decades, perhaps Fortis is a far more exciting play than some of the riskier, higher-multiple tech stocks that have a better seat at the AI revolution.
At the end of the day, energy transmission needs to be ready to go as next-generation AI data centres steadily come online in the coming years. It may be a boring business, but the excitement can’t happen without it.
