Is Fortis Inc. a Low-Risk Investment?

What makes Fortis Inc. (TSX:FTS)(NYSE:FTS) risky or not? Are you a buyer, holder, or seller?

| More on:
electricity transmission

You’re reading a free article with opinions that may differ from The Motley Fool’s premium investing services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Fortis Inc. (TSX:FTS)(NYSE:FTS) is often praised for its quality. Is it a low-risk investment? The quick answer is yes and no. The business is low risk, but the stock’s valuation is not.

What’s low risk about Fortis?

Fortis’s utility operations are largely regulated. Specifically, about 97% of its assets are regulated. So, Fortis’s earnings and returns are mostly predictable. Its regulated assets include electric utilities (44% of its earnings), electric transmission (i.e., ITC)(37%), and gas utilities (16%). As of the third quarter, Fortis’s weighted average allowed return on equity is 9.75%.

People use electricity and gas as usual, no matter what the economy does. So, Fortis’s products and services are needed in all economic environments.

utility power supply

Because of Fortis’s stable nature, it tends to do well in recessions. In the last recession, from peak to trough, the stock fell ~24%.

This seems like a lot, but it fared better than, say, the Canadian banks, which fell as much as ~50%. Though, to be fair, the last recession was triggered by a financial crisis. So, naturally, banks were hit harder.

Also to give a clearer picture, I should note that Fortis was trading at an extended price-to-earnings multiple (P/E) of ~22.8 at the start of the recession. And that the stock was super cheap — trading at a P/E of ~14.1 at the trough. The stock normally trades at a P/E of above 19.

What’s risky about Fortis today?

Fortis’s share price isn’t exactly cheap. At Friday’s market close price of $47.44 per share, Fortis traded at a P/E of ~18.9. Some value investors would say that there isn’t a big enough margin of safety in the stock.

However, in today’s market, other investors may think it’s all right to pay a fair price for a quality company such as Fortis.

It’s true that Fortis is, at best, fully valued, but it actually hasn’t been cheap for a number of years. Since the summer of 2010, Fortis has consistently traded at a P/E of 18 or higher.

Going forward, the Street consensus estimates Fortis will grow its earnings per share by 5.2-5.5% per year for the next three to five years. Is it worth it to pay a P/E of close to 19 for that growth?

Here’s what analysts think. The Street consensus from Thomson Reuters has a positive outlook on Fortis and gives the stock a 12-month target of $50.50 per share, which represents ~6.4% upside potential.

Investor takeaway

Fortis’s business is low risk, and it also offers a safe, growing dividend. It offers a yield of nearly 3.6% and aims for dividend growth of 6% per year through 2020.

The key thing that makes Fortis a little risky for new money today is its valuation. At best, the shares are fully valued. Investors who’d bought the shares at a lower valuation might opt to hold on to the quality shares for its stability and dividends.

Should you invest $1,000 in Fortis right now?

Before you buy stock in Fortis, consider this:

The Motley Fool Stock Advisor Canada analyst team just identified what they believe are the Top Stocks for 2025 and Beyond for investors to buy now… and Fortis wasn’t one of them. The Top Stocks that made the cut could potentially produce monster returns in the coming years.

Consider MercadoLibre, which we first recommended on January 8, 2014 ... if you invested $1,000 in the “eBay of Latin America” at the time of our recommendation, you’d have $21,058.57!*

Stock Advisor Canada provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month – one from Canada and one from the U.S. The Stock Advisor Canada service has outperformed the return of S&P/TSX Composite Index by 38 percentage points since 2013*.

See the Top Stocks * Returns as of 2/20/25

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Kay Ng has no position in any of the stocks mentioned.

Confidently Navigate Market Volatility: Claim Your Free Report!

Feeling uneasy about the ups and downs of the stock market lately? You’re not alone. At The Motley Fool Canada, we get it — and we’re here to help. We’ve crafted an essential guide designed to help you through these uncertain times: "5-Step Checklist: How to Prepare Your Portfolio for Volatility."

Don't miss out on this opportunity for peace of mind. Just click below to learn how to receive your complimentary report today!

Get Our Free Report Today

More on Dividend Stocks

dividends grow over time
Dividend Stocks

Income Investors: These Canadian Dividend All-Stars Are Raising Payouts Again

Long-term income investors can consider these Canadian dividend all-stars that are trading at good valuations.

Read more »

Paper Canadian currency of various denominations
Dividend Stocks

Here’s How Many Shares of ZMI You Should Own to Get $500 in Monthly Dividends

This BMO monthly income ETF is diversified and easy to understand.

Read more »

dividends can compound over time
Dividend Stocks

Tariff Risks Are Rising: Here’s How to Stay Ahead as an Investor

Are you worried about tariffs? Worry no more and protect yourself with these three stocks offering protection.

Read more »

investor looks at volatility chart
Dividend Stocks

Market Correction: 3 Canadian Stocks to Buy Before Prices Rebound

These three Canadian stocks certainly offer a lot to investors, such as stability and value, but growth is definitely in…

Read more »

a person prepares to fight by taping their knuckles
Dividend Stocks

Tariff Trouble: How Canadian Investors Can Protect Their Portfolios

Canadian investors can protect themselves against Trump tariffs through diversification.

Read more »

Young Boy with Jet Pack Dreams of Flying
Dividend Stocks

Here’s How Many Shares of Peyto You Should Own to Get $100 in Monthly Dividends

Peyto Exploration and Development stock offers investors monthly income and exposure to the strong natural gas market.

Read more »

space ship model takes off
Dividend Stocks

Why Magellan Aerospace Could Be the Hottest TSX Stock in 2025

An industry consolidator with visible earnings growth could be the hottest TSX stock in 2025.

Read more »

sale discount best price
Dividend Stocks

TSX Sell-Off: These 2 Oversold Stocks Look Like Bargains Today

These Canadian stocks that have slipped into oversold territory but could offer promising value.

Read more »