Should Investors Buy the Dip in Fortis Stock?

Fortis has historically rewarded patient investors who buy the stock on a pullback.

| More on:

Fortis (TSX:FTS) is one of Canada’s best dividend-growth stocks. Retirees seeking reliable passive income and other investors focused more on long-term total returns are wondering if FTS stock is undervalued today and good to buy for a self-directed Tax-Free Savings Account (TFSA) or Registered Retirement Savings Plan (RRSP) portfolio.

Fortis share price

Fortis trades near $54 per share at the time of writing. The stock was as low as $50 last fall and is still way off the $65 the share price reached in 2022 before rate hikes in Canada and the United States started to put pressure on utility stocks.

Fortis uses debt to fund part of its growth program. As interest rates increase, the jump in borrowing costs can cut into profits while reducing cash that could be used for dividends. This is largely why the market soured on the stock in the second half of 2022 and through much of 2023.

The Bank of Canada recently cut its interest rate by 0.25%. The U.S. Federal Reserve is expected to start cutting rates later this year or in early 2025. Fortis operates $68 billion in assets spread out across Canada, the United States, and the Caribbean. Rate reductions should help put a new tailwind behind the stock.

Growth

Fortis is working on a $25 billion capital program that is expected to boost the rate base from $37 billion in 2023 to more than $49 billion in 2028. As new assets go into service, the jump in revenue should support ongoing dividend increases of 4-6%. Fortis has additional projects under consideration and isn’t afraid to make strategic acquisitions to drive extra growth.

Dividends

Fortis has increased the dividend in each of the past 50 years. The current yield is 4.4%. This is lower than the yield investors can currently get from many other TSX dividend stocks. However, the solid outlook for distribution growth will gradually raise the yield on the initial investment and should support a higher share price over time.

Should you buy the dips?

Buying Fortis on a pullback has historically proven to be a savvy move for patient investors. The stock isn’t as cheap today as it was at the 12-month low, but Fortis is still considerably below the 2022 high and falling interest rates should start to bring investor interest back into the stock.

If you have some cash to put to work in a portfolio focused on reliable dividend-growth stocks, Fortis deserves to be on your radar.

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.

The Motley Fool recommends Fortis. The Motley Fool has a disclosure policy. Fool contributor Andrew Walker has no position in any stock mentioned.

More on Dividend Stocks

investment research
Dividend Stocks

Best Stock to Buy Right Now: TD Bank vs Manulife Financial?

TD and Manulife can both be interesting stock picks for today, depending on your investment style.

Read more »

A worker gives a business presentation.
Dividend Stocks

2 Dividend Stocks to Double Up on Right Now

These stocks are out of favour but could deliver nice returns over the coming years.

Read more »

Man holds Canadian dollars in differing amounts
Dividend Stocks

This 5.5 Percent Dividend Stock Pays Cash Every Month

This defensive retail REIT could be your ticket to high monthly income.

Read more »

Confused person shrugging
Dividend Stocks

Passive Income: How Much Do You Need to Invest to Make $600 Per Month?

Do you want passive income coming in every single month? Here's how to make it and a top dividend ETF…

Read more »

Canadian Dollars bills
Dividend Stocks

3 Monthly-Paying Dividend Stocks to Boost Your Passive Income

Given their healthy cash flows and high yields, these three monthly-paying dividend stocks could boost your passive income.

Read more »

Make a choice, path to success, sign
Dividend Stocks

The TFSA Blueprint to Generate $3,695.48 in Yearly Passive Income

The blueprint to generate yearly passive income in a TFSA is to maximize the contribution limits.

Read more »

hand stacks coins
Dividend Stocks

3 Ultra-High-Yield Dividend Stocks You Can Buy and Hold for a Decade

These three high-yield dividend stocks still have some work to do, but each are in steady areas that are only…

Read more »

senior man and woman stretch their legs on yoga mats outside
Dividend Stocks

TFSA: 2 Canadian Stocks to Buy and Hold Forever

Here are 2 TFSA-worthy Canadian stocks. Which one is a good buy for your TFSA today?

Read more »