Stock market volatility can make investing a challenging prospect to consider. When the market conditions are as uncertain as they are today, many investors are wary about putting money into the market due to potential losses. However, seasoned investors use pullbacks to invest in undervalued stocks to pick up shares at a bargain.
Fortis (TSX:FTS) is a popular choice for investors seeking bargains during market downturns. Being one of the top Canadian utility stocks, it offers dividends virtually guaranteed to grow each year. In recent weeks, Fortis stock has seen its share prices climb higher. Some investors might be worried whether it will be worth investing in right now.
As of this writing, Fortis stock trades for $66.07 per share, up by over 29% from its 52-week low. Today, we will discuss whether it is a risky investment or worth adding to your self-directed portfolio for the long run.
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Fortis stock
Fortis is a $32.99 billion market capitalization utility holdings company that owns and operates several natural gas and electric utility businesses across Canada, the U.S., and the Caribbean.
Fortis stock and other utility companies enjoy the benefits that come with offering essential services. People look to cut their expenses during harsh economic periods. No matter how bad things get, they still need power and gas in their homes. This puts companies like Fortis in a unique position to continue enjoying revenue when many other companies might lose business.
However, utility businesses must contend with heavy debt loads to fund their business models. These companies use debt to fund their growth projects, costing billions. Rising interest rates in 2022 and 2023 saw Fortis struggle due to higher borrowing costs. Variable-rate loans saw debt expenses rise and reduced cash available for distributions.
However, the new interest rate cuts in the US and Canada last year reinvigorated Fortis stock. The development led to significant gains for Fortis stock, and it sits at an almost 30% gain from its 52-week low. Since tariffs won’t impact utility businesses, it is the likely reason many investors are investing in stocks like Fortis and sustaining its uptick this year.
Foolish takeaway
The question still stands: Does the recent uptick make Fortis too risky to buy right now, or is it a worthwhile investment?
Fortis hasn’t completed a major acquisition in recent years. However, it has a $26 billion capital program that the company expects to grow its rate base to around $53 billion in 2029, which is a massive improvement from its $38 billion rate base in 2024. The company’s new assets are complete and expected to go into service soon. This development will likely see an increase in revenue and keep the company on track to fund dividend hikes for several years to come.
As of this writing, Fortis stock distributes payouts to its investors every quarter at a 3.72% annualized dividend yield. Boasting a dividend-growth streak of over 50 years, it might be an excellent holding to consider even as the stock hovers around its new all-time high valuations.
