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Buying top TSX stocks on pullbacks takes courage and requires the patience to ride out ongoing turbulence, but the strategy can boost dividend yields and set the portfolio up for decent potential capital gains on a recovery. In the current economic environment, it makes sense to search for undervalued stocks with good track records of dividend growth.
Fortis stock price
Fortis (TSX:FTS) trades near $52.50 at the time of writing compared to more than $64 at the high point in 2022. The drop is primarily due to the impact of rising interest rates in the United States and Canada rather than the result of any particular operating issues.
Fortis is a utility company with $66 billion in assets located across Canada, the United States, and the Caribbean. The businesses generate power, transmit electricity, and distribute natural gas for customers in five Canadian provinces, 10 American states, and three countries in the Caribbean.
Fortis reported solid 2023 results. Adjusted net earnings came in at $1.50 billion compared to $1.33 billion in 2022, or $3.09 per share, compared to $2.78 per share the previous year.
Fortis grows through a combination of strategic acquisitions and internal projects. The company hasn’t made a large purchase for several years, but the capital program remains robust. Fortis completed $4.3 billion in capital expenditures in 2023, boosting the midyear rate base to $37 billion. That’s about a 6% growth rate compared to 2022.
Looking ahead, Fortis has a $25 billion capital program scheduled for 2024-2028. This is expected to grow the rate base to $49.4 billion over five years, which translates into a compound annual growth rate of better than 6%. Management has a number of other projects under consideration that could get added to the capital program to extend the growth guidance.
Dividends
Fortis has increased its dividend annually for the past 50 years. This is important for investors to consider when choosing a dividend stock for a self-directed Tax-Free Savings Account (TFSA) focused on passive income. It is also attractive for a Registered Retirement Savings Plan (RRSP) targeting total returns. Fortis offers a 2% discount under its dividend-reinvestment plan (DRIP) that investors can use to harness the power of compounding as they build their retirement fund.
Fortis plans to increase the dividend by at least 4% per year through 2028, supported by the capital program. Investors who buy the stock at the current price can get a 4.5% dividend yield. This is better than the return investors can currently get on a five-year Guaranteed Investment Certificate from most of the major Canadian banks.
Is Fortis good to buy now?
Ongoing volatility should be expected until the central banks begin to cut interest rates. That being said, Fortis pays an attractive dividend that should continue to grow, and the stock already appears undervalued at the current level. Long-term investors have benefitted by buying Fortis on significant dips.
If you have some cash to put to work in a buy-and-hold TFSA or RRSP targeting top Canadian dividend stocks, Fortis deserves to be on your radar.
