With a market cap of $38 billion, Fortis (TSX: FTS) is one of Canada’s largest utility stocks. The company has provided resilient and predictable returns for years.
When you add in dividends, Fortis has delivered 55% total returns in the past five years, 160% in the past 10 years, and 535% over the past 20 years. Those equate to respective compounded annual growth rates of 9.2%, 10%, and 9.7%. It’s a near-market return. However, it has come at significantly less volatility than the market.
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Fortis is the perfect stock to hold when the market turns volatile
Fortis is a stock many investors run to when things turn volatile. It has a Beta of 0.41. This just means that it reacts at two-fifths the volatility of the broader market. In major downdrafts, it is much less likely to swing as deep as the surrounding stock market. Certainly, this factor also caps your upside in a bull market. However, it doesn’t hurt to have a few of these types of stocks in your portfolio.
Fortis operates a very resilient business. People and businesses need power, and they need gas for heating/cooling. These aren’t optional services. While demand can swing from year to year, it doesn’t change much in the long term.
Diversified and regulated
Today, Fortis operates nine utilities in British Columbia, Alberta, Ontario, the Maritimes, multiple states, and the Caribbean. This helps diversify Fortis operations in terms of climate, regulator, economy, and jurisdiction.
For the first time in years, electricity demand per capita is rising. Data centre demand and societal electrification means more strain on the energy grid.
As a transmission and distribution business, Fortis provides the network and grid to bring power/gas to consumers. Its assets are the nervous system of the power grid. It provides the power/gas services in a safe manner. In return, the regulator guarantees a reasonable return on the investments Fortis makes. Fortis is 100% regulated.
A low-risk growth profile
While Fortis is not the fastest-growing stock, it is very prudent and thoughtful about growth. It is investing in a $28.8 billion capital plan for the coming five years. Fortis is focused on low-risk, economically essential investments.
As a result, it believes it can deliver 7% compounded annual rate base growth over that time frame. That rate base growth is very likely to translate into a 6–7% digit revenue and earnings per share growth over that time. Beyond its five-year plan, it has no shortage of growth opportunities either.
Fortis does have a substantial amount of debt. However, with an A- credit rating, its cost of debt is low. Likewise, its debt maturity schedule is long-dated and appropriately laddered.
Fortis is a great stock for low volatility and rising dividends
The true beauty of Fortis is its longstanding dividend record. It is one of the best in Canada. It has raised its dividend for 52 consecutive years. With a 70% dividend payout ratio, Fortis still generates excess cash to help backstop its growth program without compromising its balance sheet.
When the stock market fluctuates, you know that your dividend payment will be safe. A stock like Fortis is the ideal buy-and-hold anchor for any investor’s portfolio. You may not get home-run gains, but you will hit base after base after base for years and maybe even decades ahead.
