It’s pretty boring to hang onto the shares of utility stocks. Predictability and less excitement are when you’re getting, especially compared to more growth-oriented names.
And while they are far less likely to experience those parabolic surges over a span of a few months or even a few weeks, the top utilities can act as long-term stabilizers for your portfolio. When volatility returns, as it often does for a wide range of reasons, it’s nice to have a steady Eddie dividend payer at the core of one’s portfolio.
Source: Getty Images
Time to play defence with utility stocks?
With broad markets experiencing considerable pressure on Friday’s session, as the semiconductor names and much of the tech sector led the way lower, questions linger as to whether stability with the utilities is the best play moving forward, as profit-taking in the heated names starts to really get going as we head into one of the biggest tech initial public offering (IPO) seasons in recent memory.
Of course, when it comes to the utility stocks, the added stability, certainty, and better night’s sleep often come at the cost of potential returns over time. Indeed, a lack of surprises also means a lack of positive, needle-moving, delightful surprises as well.
And while staying the course with a heavy weighting in a top utility play with a nice dividend might come at the cost of subpar results (or even market-trailing returns) over time, I do think that the utility plays might be entering a new era where they can be, in fact, as exciting as they are reliable.
With the AI revolution continuing to play out, there’s been more focus put on the energy names and the grid needed to transport that energy further downstream.
Fortis stock an exciting capital gains play?
Any way you look at it, the utility plays might be well worth the slightly higher premium they might carry today. Just have a look at shares of Fortis (TSX: FTS), which are up close to 40% in the past two years. Those are some pretty stunning returns from a stable utility stock.
Though the name is trading at a slight premium relative to historical averages at around 23.0 times trailing price to earnings (P/E) with a 3.3% dividend yield (it’s far less than the 4% the stock once commanded), I still think the name looks quite cheap relative to the defensiveness you’re getting, the predictable earnings and dividend growth, as well as the potential boost that artificial intelligence (AI) will have over the extremely long term.
Sure, AI is thrown around a lot as a positive for just about every firm, but in Fortis’s case, it’s a genuine long-term tailwind. What’s more, though, is that Fortis is a profitable company that could be made even more profitable at the hands of the AI boom.
Like it or not, the grid will need many upgrades to keep up in the AI age. And Fortis will be just one of the many pivotal “boring” utility plays that are going to do their part. Additionally, let’s not forget about the many ways Fortis can use AI to improve operations and save money. At the end of the day, there are automation gains to be had in the utility space as well!
All considered, I view FTS stock as not only a name that can hold up on those really bad days (the stock actually rose 1.4% on one of the worst days for the Nasdaq 100 in quite a while), but as a great long-term play to grow one’s wealth while getting paid a fat, growing dividend.
