A Tax-Free Savings Account (TFSA) is an effective way to build long-term wealth by letting eligible investments grow tax-free, subject to applicable rules and contribution limits. However, investment losses can permanently reduce your available contribution room, so careful stock selection is essential. Investors should therefore focus on established businesses with reliable cash flows, resilient operations, and sustainable growth prospects.
Against this backdrop, Fortis (TSX: FTS), which serves 3.5 million electricity and natural gas customers across Canada, the United States, and the Caribbean, stands out as a compelling TFSA candidate. Its regulated utility operations, predictable cash flows, and strong dividend-growth track record make it a compelling option for investors seeking long-term capital appreciation and reliable passive income. Let’s examine Fortis’s business operations, latest quarterly performance, growth prospects, dividend history, and valuation to understand its potential as a long-term TFSA investment.
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Fortis’s business outlook
Fortis operates nine regulated utilities across five Canadian provinces, 10 U.S. states, and the Cayman Islands. With most of its assets concentrated in low-risk electricity and natural gas transmission and distribution operations, the company benefits from predictable earnings and reduced exposure to commodity price fluctuations. Fortis also continues to expand its rate base and improve operational efficiency, supporting sustainable earnings and cash flow growth.
This resilient business model has helped Fortis deliver an average annual total shareholder return of 10.5% over the past 20 years. The company has also increased its dividend annually for 52 consecutive years, reflecting its ability to generate reliable cash flows and sustain dividend growth across changing economic conditions. At its current share price, the utility offers a forward dividend yield of about 3.2%.
Fortis continued to deliver steady financial growth in its second-quarter results, reported in July. Net income increased 3.1% year over year to $396 million, while earnings per share rose 2.6% to $0.78. Rate base expansion and higher retail electricity sales supported the improvement. However, these benefits were partially offset by costs from rate base investments not yet reflected in customer rates, the timing of operating expenses at UNS Energy, higher financing costs, unfavourable foreign exchange movements, and asset dispositions.
Despite these near-term cost pressures, Fortis’s regulated operations and ongoing investments provide a solid foundation for future growth. Let’s examine the company’s growth prospects and the opportunities that could drive its financial performance in the years ahead.
Fortis’s growth prospects
Electrifying transportation, the rapid expansion of AI-ready data centres, and continued economic and population growth are driving higher demand for reliable electricity and natural gas infrastructure. Capitalizing on these structural tailwinds, Fortis is accelerating investments to expand its regulated asset base. The company invested $2.7 billion in the first half of the year and remains on track to deploy $5.4 billion in capital over the full year.
Looking further ahead, Fortis plans to invest an additional $23.4 billion between 2027 and 2030, targeting rate base growth to $57.9 billion, representing an annualized growth rate of approximately 7%. These investments should expand the company’s regulated earnings base and strengthen its capacity to generate predictable long-term cash flows. In parallel, Fortis continues to prioritize operational efficiency, disciplined capital allocation, and innovation to manage costs and enhance profitability.
With its expanding rate base and a clear long-term investment program, management expects dividends to grow 4% to 6% annually through the end of the decade.
Investors’ takeaway
Fortis has delivered a solid year-to-date total return of 16.4%, reflecting continued investor confidence in its resilient business model and growth prospects. Despite this performance, the utility stock trades at relatively reasonable forward sales and earnings multiples of 2.9 and 21, respectively. With a predominantly regulated asset base, dependable cash flows, a long history of dividend growth, and clearly defined capital investment plans, Fortis offers a compelling mix of income and long-term growth potential. These qualities make it a strong candidate for TFSA investors seeking a balance of stability, recurring income, and capital appreciation.
