Fortis (TSX:FTS) is one of the often-cited stocks for investors to buy as part of a well-diversified portfolio. But given the volatility we’ve seen so far this year, which translates into Fortis stock trading nearly flat over the prior two years, is it still a good buy?
Let’s look at a case of whether you should buy, sell, or just hold Fortis stock right now.
The case for buying
Utilities like Fortis operate one of the most stable business models on the market. In short, they provide a service that is backed by long-term regulated contracts. For as long as the service is provided, Fortis gets paid.
Prospective investors should note that those regulated contracts span decades in duration. This allows Fortis to continue investing in growth initiatives while providing investors with one of the best dividends on the market.
Keep in mind that, unlike consumer discretionary items that consumers might cut back on during a downturn, utilities rank high on the list of necessities. This fact makes Fortis stock one of the defensive titans right now, and that’s without factoring in Fortis’s dividend.
Fortis provides investors with a quarterly dividend that currently offers a 4.25% yield. This means that investors who drop $20,000 in Fortis can expect to generate a first-year income of just shy of $850.
Investors should also note that Fortis is one of just two Dividend Kings on the market. This means that Fortis has provided annual bumps to that dividend for an incredible 50 consecutive years without fail.
The company also plans to continue that annual cadence, forecasting 4-6% annual growth of that dividend through 2028.
That fact alone makes Fortis a great option to buy right now for the longer term.
The case for holding
Market volatility has slowed Fortis’ growth alongside the rest of the market. But that doesn’t mean that existing owners of Fortis stock should sell.
If anything, there’s a compelling case for some investors to hold.
The market moves in cycles. Many investors see a recession coming within the next year. There are countless stories of investors selling on emotion at the wrong time. So, then, rather than sell, a more viable option is to wait out the market by holding.
There’s no denying that Fortis is a defensive gem that has weathered slowdowns before. The fact that the stock is relatively flat or up just a few points while the market is down is a testament to this.
It’s not like Fortis posted horrible results either. In the most recent quarter, Fortis saw net earnings improve by a whopping $68 million over the prior year.
The case for selling
As appealing as the defensive-oriented Fortis is, it may not be a buy for everyone. And Fortis’s stock price barely breaking even over the trailing two years is telling.
In short, investors looking for a growth option may want to look elsewhere. In fact, the current bout of volatility has shifted several great long-term stocks into discount territory while also swelling their dividends.
Speaking of market volatility, let’s talk about one of the key sources of that volatility — rising interest rates. Utilities operate an extremely capital-intensive business, particularly when it comes to expansion. Fortis has taken an aggressive stance on expansion, but that appetite has diminished in recent years. This is partly due to Fortis focusing on existing portfolio upgrades and transitioning to renewables.
Those are costly endeavours, which are now even more costly.
To put it another way, those rising borrowing costs will trickle down to Fortis’s plans, perhaps even delaying some.
This could leave Fortis stock as a no-growth option surrounded by discounted higher-yield options.
Fortis stock: What’s your position?
Every stock, even the most defensive, holds some risk. That’s certainly true when it comes to Fortis. Fortunately, the defensive appeal of Fortis, coupled with that incredible dividend growth is hard to ignore.
In my opinion, Fortis stock is a great long-term option to include in any well-diversified portfolio. While there are stocks with higher yields right now, Fortis is a set-and-forget option that can appeal to any investor.
