Opinions
Greg Newman
Fortis Inc.
FTS-T
WAIT
Apr 25, 2025
Stock price when the opinion was issued
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It is true that lower rates should otherwise be a tailwind for businesses with leveraged balance sheets. In fact, FTS has recovered meaningfully to reach 52-week highs recently. We think for a conservative name like FTS its performance is quite good. The upside potential from the interest rate tailwinds may not be as attractive as it used to be, but we think FTS is still a high-quality dividend payer. We think FTS can do well from here for shareholders with a potential total return of around 10% annualized return over the long-term.
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Fortis currently pays 4.09% and will raise that by 4.2%. The dark days of interest rate hikes are over, and the expected cuts are certainly working in Fortis' favour. A favourite of Stockchaser Trevor Rose and much of Bay Street, Fortis trades at 18.88x PE which is below its median average of 19.77x. This despite shares rallying 5.5% over the past three months.
Benefits from recent interest rate cuts, but note that long-term rates are actually rising and this will limit dividend stocks like this. Why? Concerns of inflation returning, or signs of a strong economy coming, but also there could be a debt-maturing wall coming. There's $300 trillion of debt around the world. Fortis pays a 4% dividend, but doesn't grow much. So, considering interest rates ahead, he may exit this at the end of 2025.
Analysts tend to be conservative. It is a pretty solid, high-paying job, and they do not get much benefit from 'sticking their neck out' versus the crowd. Target prices and recommendations tend to be similar. They do not get fired if 'everyone else was also wrong' but if they are an outlier then their calls are more closely scrutinized. AT 19X earnings FTS still looks OK to us, and its positive momentum in a bad market we think is a strong sign as well. But, it is up 28% in a year, and we would not expect those types of returns on a regular basis. It is still a relatively slow-growth utility company.
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Everybody's been crowding into what's been working. Bond proxy, not too challenged by Trump tariffs. Great long-term compounder. Raises dividend every year, by ~5%. Good long-term growth. Q4 beat. Steady player, without all the ups and downs.
One knock is that it's only growing 5%, but trading at 17x. So, no, don't buy at this level. In the space it's time to look at AQN again (believe it or not), GEI, or ALA.