The stock of Fortis (TSX:FTS) has experienced a significant increase in value over the past three months, rising by approximately 10%. This upward trend can be attributed in part to the expectation of further decreases in interest rates as we move into the new year. Lower interest rates are likely to benefit utility companies like Fortis by enabling them to finance dividend increases and other cash-generating projects. Additionally, there are potential long-term catalysts on the horizon that could propel traditional utility firms, such as Fortis, to surpass the performance of the broader TSX Index over the next five years.
Despite the recent surge in share price, Fortis has only seen a modest 7% increase in value over the past five years, even when factoring in dividends with a yield of 4.2%. Looking ahead, there are several factors that could support stronger gains for Fortis in the future. These include lower interest rates, heightened recession concerns leading investors to seek defensive dividend plays, and increasing energy demand driven by advancements in artificial intelligence (AI) and electric vehicles.
While some investors may prefer to wait for a dip in share price before buying, the current 4% decrease from 52-week highs presents an opportunity for long-term investors seeking defensive dividend stocks. With a relatively modest price-to-earnings (P/E) ratio of 18.7 and a healthy dividend yield of 4.2%, Fortis remains an attractive option for dividend growth investors. The company’s solid track record of increasing dividend payouts, combined with its strategic investments in AI and EV-related infrastructure, make it a compelling choice for investors looking to capitalize on future energy trends.
Fortis has outlined an ambitious five-year capital plan totaling $26 billion, which is expected to support additional dividend hikes in the future. The regulated nature of these projects adds a layer of security to Fortis’ growth prospects. Given these factors, considering an investment in Fortis at its current price point below $60 per share could prove to be a prudent decision for investors seeking defensive dividend stocks that offer long-term stability and growth potential.
