It’s tough to know what the perfect stock is to buy at any given time, and at a time of tremendous industry-wide change, thanks in part to the rise of the AI revolution, perhaps there is no name that’s perfect in that it can deliver alpha (think solid returns when adjusted for risk) without a bit of extra volatility and uncertainty.
Any way you look at it, investors should strive for companies that come pretty close to perfect. But, at the same time, one should also stay informed well after they’ve hit the buy button, even if one originally intended to hold for 15 years or more. In this piece, we’ll look at one value name that, while imperfect in some ways, could make for a stellar buy as the AI revolution eventually trickles down to the power side of the equation and the grid that’s needed to transmit that power.
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Shares of Fortis could be one of those portfolio stabilizers that’s pretty close to perfect
Enter shares of steady utility firm Fortis (TSX:FTS), while it’s currently going for $82 per share. Of course, it’s not the perfect stock by any stretch, especially with a dividend yield that’s close to a full percentage point below where it was just a few months ago. The name is also on the pricier side of the recent historical range, going for just over 24 times trailing price-to-earnings (P/E).
That’s not at all cheap for a company that doesn’t have all that much in the way of upside surprises to offer, given the highly regulated nature of its cash flow streams. Indeed, predictability matters at a time when things couldn’t be more unpredictable with the rise of AI and the impact on the labour market. So, why would shares of FTS be a great buy despite its less bountiful dividend and slightly heftier price of admission?
The need for the grid to expand is real when you consider how much power AI data centres consume, especially the ones going up that aren’t bringing their own power. The AI revolution is moving fast, but it seems like the power side, and power infrastructure specifically, is becoming a more prominent chokepoint. Of course, some of the long-term AI tailwind might already be priced into the shares right here. It’s not like FTS stock is going for a growthy 24 times P/E multiple is “normal.”
Demand for more grid capacity bodes well for Fortis’ dividend growth trajectory
At the same time, though, the electrical utilities are going to be very busy as they bring the grid into the modern era. In addition, as calls for an AI bubble grow a bit louder, I think hiding out in a lower-volatility (the beta sits at 0.43, making it less likely to follow the TSX Index on any given day) steady dividend grower can make a lot of sense. In a way, it’s not giving up on the AI tailwind. Rather, it’s just a different, safer way to play the rising tide.
Also, if we’re in for another flight to safety (think a rotation back to defensive dividend payers), I think names like Fortis could stand to become even pricier. In any case, I view Fortis as more than worth the premium at a time like this. It’s a predictable, and nearly perfect steady Eddie that can act as a TFSA ballast of sorts, especially for investors who are too heavy on tech themes.
