Fortis Inc. Delivers 52nd Dividend Hike, Attracts Investors

Fortis Inc. (TSX: FTS), one of Canada’s largest utility firms, has announced its 52nd consecutive dividend increase, reinforcing its reputation for consistent shareholder returns. This milestone highlights Fortis’s commitment to dividend growth, placing it among the top contenders in the Canadian market. In addition to this remarkable achievement, the company reported substantial growth in both revenue and earnings over the last twelve months, alongside significant advancements in its ambitious capital expenditure (CAPEX) plan.

The recent CAPEX investments, which are expected to increase Fortis’s rate base from $41.9 billion to $57.9 billion over the next five years, are set to deliver immediate revenue-generating opportunities. While high CAPEX spending is often viewed negatively in the utility sector, Fortis’s strategy aims to enhance infrastructure and connect new customers, particularly in remote areas. This growth presents a promising opportunity for the company to secure regulatory approvals for future rate hikes.

Three Key Reasons to Invest in Fortis

Investors may find compelling reasons to consider Fortis stock, especially following the recent dividend announcement. Three primary factors stand out: dividend growth, long-term financial performance, and attractive valuation.

Dividend Growth and Sustainability
The most appealing aspect of Fortis for many investors is its dividend potential. Currently, the stock boasts a yield of 3.5%, surpassing the average yield of other stocks on the TSX. With a payout ratio of 71%, Fortis remains well within a sustainable range. The ongoing CAPEX program is anticipated to create new revenue streams, which can further support dividend increases in the future.

Long-term Growth Prospects
Another significant factor driving interest in Fortis is its solid long-term growth trajectory. Over the last twelve months, the company achieved revenue growth of 5.2%, earnings growth of 5.1%, and operating cash flow growth of 7.5%. In the past five years, Fortis has compounded its revenue and earnings at rates of 6% and 5%, respectively. Although these growth rates may not be extraordinary, they are consistent and provide a stable foundation for investors seeking reliability.

Valuation
Fortis shares are currently trading at a modest valuation compared to broader market averages. As of the latest financial data, Fortis trades at 21 times earnings, 3 times sales, and 1.6 times book value. In contrast, the S&P 500 trades at approximately 30 times earnings and 5.5 times book value. This valuation indicates that Fortis does not require significant growth to justify its investment appeal, making it a comparatively attractive option.

Conclusion: A Strong Investment Choice

Given Fortis’s consistent performance, sustainable dividend, and reasonable valuation, the outlook for the stock appears promising. It presents an opportunity for investors looking for reliable income alongside moderate growth. As a dividend-focused investment, Fortis stands out in the current market landscape.

Before making any investment decisions, potential investors should consider that while Fortis shows significant promise, it may not be on every analyst’s top list. For example, the Motley Fool Stock Advisor Canada team has identified 15 stocks they believe offer greater potential returns. Nonetheless, those seeking a stable dividend and growth in a utility sector may find Fortis a worthy addition to their portfolio.