A utility announcing billions in spending can sound like a company announcing billions in bills. Shareholders need to know what they’ll get back. I’d pay closest attention to how that spending could grow earnings per share, because that’s what can eventually put a larger dividend in your account.
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Spending needs to earn its keep
Regulated utilities operate differently from an ordinary retailer. They invest in equipment that delivers an essential service, then seek permission to recover eligible costs and earn an approved return through customer bills. The assets included in that calculation are called the rate base. A larger rate base can support higher earnings without requiring a sudden surge in electricity prices.
There’s a catch worth understanding before buying utility stocks. Construction needs cash before customers start covering the cost. Debt brings interest payments, while issuing shares spreads the eventual profit across more owners. An ambitious investment plan can leave shareholders disappointed if financing costs or the share count grow too quickly.
That’s why the total spending figure won’t settle my investment decision. A project with an agreed way to recover costs is more useful than a distant opportunity awaiting permits. I’d give more weight to the expected growth in regulated assets, the financing mix, and the years when completed projects should begin earning their return.
Fortis already has a starting point
Fortis (TSX: FTS) owns regulated electricity and gas utilities across North America. Its existing five-year plan calls for $28.8 billion of investment through 2030. Management expects that to lift the midyear rate base from $42.4 billion in 2025 to $57.9 billion in 2030, equivalent to roughly 7% annual growth. That’s a defined path for expanding the business.
The difference between those asset values is $15.5 billion, considerably less than the spending budget. Depreciation, timing, and the way investments enter the regulated calculation help explain the gap. It’s a reminder that a dollar spent doesn’t become a dollar of additional shareholder value immediately. The value comes from years of permitted earnings after an asset starts serving customers.
Tilbury offers a concrete example. British Columbia approved an expansion allowance of up to $2.2 billion, while the existing Fortis plan included about $350 million for that project. Construction could begin in 2027, with service as early as 2031, subject to remaining requirements. Tuesday’s update should show how the company plans to incorporate that opportunity.
The dividend needs per-share growth
Second-quarter earnings were $0.78 per share, up from $0.76. Over the first half, however, earnings per share were unchanged at $1.76 even though total common-shareholder earnings increased. More shares helped absorb the improvement. That result makes financing particularly relevant as investors assess the next spending plan. Growing the company and growing each shareholder’s claim aren’t identical achievements.
Management’s existing dividend-growth guidance is 4% to 6% annually through 2030. At a 5% illustrative growth rate, $1,000 of annual income would become about $1,276 after five increases. That’s $276 more each year without buying additional shares. The calculation shows why patient investors can value modest, repeatable increases, although future declarations and Tuesday’s updated guidance still govern the actual payment.
Higher interest rates could make that growth harder to finance and pull investors towards deposits or bonds. Regulators can also delay recovery of spending. I’d keep Fortis on the conservative side of a dividend portfolio, while allowing room for its share price to fall. An essential service doesn’t make the stock’s purchase price unimportant.
Bottom line
Fortis offers an understandable route from infrastructure spending to growing income. I like that route for money invested over many years. With a new plan just days away, I’d wait before making a large addition and use the update to assess financing alongside growth. A bigger budget earns my interest. A credible improvement in earnings and dividends per share earns my investment.
