The Canadian utility scene has been under a lot of pressure in recent quarters, thanks in no part to elevated interest rates. Indeed, high rates have been quite a headwind for many firms, especially those with profits lying far into the future. For the utility plays, they have plenty of profits that investors can enjoy in the present. With hefty capital expenditures weighing some of them down, however, higher interest payments on debt are never ideal, especially if given growth rates within the utility sector aren’t exactly incredible.
Moving ahead, investors should give the undervalued utility stocks a bit more love as they look to move on from a rather uneventful past few years. Of course, not all utility companies have been fading — Hydro One (TSX:H) stock is one of the top dogs that’s left the rest of the sector behind in recent years. However, for the ones that are at or around 52- or multi-year lows, I believe there’s a huge window of opportunity for Canadian investors to get maximum bang for their buck while valuations are low and dividend yields are on the high side.
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Fortis stock: Deep value in the utility scene?
At this juncture, I’m a big fan of Fortis (TSX:FTS) while it sports a dividend yield of around 4.5%. Undoubtedly, regulatory unknowns have continued to act against the firm. The company’s ITC transmission subsidiaries are subject to potential regulatory roadblocks that may persist for some time. Either way, I think such regulatory hurdles and limited growth prospects have already been baked into the share price for quite some time.
At the end of the day, you shouldn’t look at shares of Fortis as a means to grow your wealth at an above-average rate. As a utility play, it’s more of a way to stabilize your portfolio through even the rockiest environments. The company’s highly regulated cash flow stream makes the firm a pillar of stability when markets decide to nosedive. When euphoria and greed turn to fear, you’ll be glad you held onto shares of Fortis.
These days, the price of admission in the name seems to be quite low. When you can punch your ticket to a hot artificial intelligence play with positive momentum behind it, why settle for a lower-growth utility that has arguably one of the ugliest charts out there? Unless you’re a defensive dividend investor who has a nose for value, Fortis stock is probably too underwhelming a play to have atop your radar.
The Foolish bottom line on shares of Fortis
The stock goes for 16.8 times trailing price to earnings, which looks quite cheap given the earnings predictability you’ll get. Fortis won’t make you rich, but it can help you build wealth, stay rich, and perhaps give you a nice passive income raise every now and then. For a prudent investor, I’d argue that’s more than enough.
At just shy of $53 per share, Fortis looks like an untimely play. But one that patient investors may wish to continue to hold given its track record of holding (relatively) steady through the market’s darkest moments.
