With many stocks sitting near record highs, investors are wondering which companies are still attractive to add to a self-directed Tax-Free Savings Account (TFSA) or Registered Retirement Savings Plan (RRSP) portfolio focused on dividends and long-term total returns.
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Fortis
Fortis (TSX:FTS) trades near $77 per share at the time of writing. The stock has pulled back a bit from the recent $80 high, giving investors a chance to buy a small dip in the Canadian dividend star.
Fortis operates rate-regulated utility businesses in five Canadian provinces, 10 American states, and the Cayman Islands. The $77 billion in assets includes power generation facilities, natural gas distribution utilities, and electric transmission networks. Nearly 10,000 employees serve 3.5 million customers.
Fortis grows through a combination of strategic acquisitions and development projects. The company hasn’t made a major purchase for several years, but it is working on a $28.8 billion capital program to drive ongoing revenue and earnings expansion.
Fortis expects the projects to boost the rate base from $42 billion in 2025 to nearly $59 billion in 2030. Revenue and earnings growth from the new assets should support planned annual dividend increases in the 4% to 6% range over the next five years.
Fortis has increased the dividend in each of the past 52 years, so investors should be comfortable with the guidance.
The company has a number of other projects under consideration that could drive growth beyond 20230. Fortis operates the largest independent electric transmission network in the United States where rising demand for power will require grid expansion.
In Canada, Fortis sees an opportunity to build out liquified natural gas (LNG) infrastructure in British Columbia. Fortis would also be a good candidate to participate in Canada’s new plan to double power capacity and create a nationwide power grid. The company’s expertise in operating large electric transmission infrastructure, as well as gas-fired power generation sites, positions it well to bid on contracts.
Risks
Fortis uses debt to fund part of its growth program, which includes projects that can cost billions of dollars and sometimes take years to complete. This is normal for utilities and pipeline companies. When interest rates rise, however, debt becomes more expensive. Higher borrowing costs can cut into profits and reduce cash that is available for dividends or for paying down the debt load. Fortis finished 2025 with roughly $34 billion in carrying value in long-term debt, including the current portion.
If borrowing costs rise too quickly over a short period of time, as occurred in 2022 and 2023, utility stocks can get hit. Fortis, for example, saw its share price drop by more than 20% over a six-month span in 2022 and didn’t recover the losses until the central banks started to cut rates again in 2024.
Looking ahead, investors need to be nimble. A selloff in the bond market in recent weeks has driven up yields, making borrowing more expensive. This is due to concerns that rising inflation caused by higher oil prices will force the central banks to start raising interest rates again. If that happens, Fortis could face new headwinds.
The bottom line
Near-term risks need to be considered, but buy-and-hold dividend investors should still be comfortable owning Fortis today. Pullbacks would be an opportunity to add shares to the portfolio.
