Fortis Inc. (TSX:FTS) is a top dividend stock for Canadian investors seeking reliable income. The utility holding company has an impressive track record of dividend growth, having raised its payout for 50 consecutive years. With Fortis planning to continue hiking dividends through 2028, is this stock a buy before 2024?
Overview of Fortis Inc.
Fortis is a St. John’s, Newfoundland-based utility holding company. It owns several regulated gas and electric utilities across Canada, the United States and the Caribbean. Some of its major subsidiaries include:
- FortisBC – Providing electricity and gas to British Columbia
- FortisAlberta – Electricity delivery in Alberta
- FortisOntario – Electricity delivery in Ontario
- Newfoundland Power
- Caribbean Utilities – Electricity provider in the Cayman Islands
- ITC – Electric transmission in the Midwestern U.S.
- UNS Energy – Electric and gas delivery in Arizona
In total, Fortis serves over 3.4 million customers across its vast utility network. Its operations are highly defensive and predictable, with 93% of its assets focused on regulated utility businesses. This makes Fortis a low-risk way to gain exposure to the utilities sector.
Why Fortis is a Dividend Aristocrat
Fortis has an exceptional track record when it comes to dividends. The company has raised its dividend for 50 consecutive years, making it one of only 11 Dividend Aristocrats in Canada.
This consistency comes from the cash flow stability of its regulated utility operations. With little exposure to volatile wholesale energy prices, Fortis can comfortably raise payouts over time. Its target dividend growth guidance through 2028 of 4-6% per year demonstrates this capability.
Fortis aims to provide dividend growth that keeps up with inflation over the long run. The reliability of its payouts makes it a favorite among income investors.
Recent Dividend Hikes
Fortis has kept up its impressive dividend growth streak in recent years. Some highlights include:
- In 16th November 2023, it raised its payout by nearly 5.3% to $0.590 CAD per share quarterly. This marked its 49th consecutive annual hike.
- The November 2022 dividend increase was also 5%, up from $0.565 CAD.
- Prior to that, the company bumped its payout by 4% in 18th August 2021.
These consistent around 5% annual dividend increases are right in line with Fortis’ long-term target range. The hikes also handily beat inflation, giving shareholders meaningful growth in income.
Outlook for Future Dividend Growth
In its latest update in October 2023, Fortis confirmed its capital plan through 2028. This $22.3 billion investment program will expand and strengthen the company’s rate base across its utilities.
Growing its rate base allows Fortis to steadily increase the revenue and cash flows supporting the dividend over time. That’s why management reiterated its 4-6% annual dividend growth guidance through 2028.
Hitting the mid-point of 5% would result in Fortis’ payout reaching $2.31 per share in 2028. That’s up substantially from the current $2.06 per share annualized rate.
Fortis does carry more debt than some other utilities. However, its investment grade credit rating of BBB+ remains safe for now. Investors can likely expect very predictable dividend growth from Fortis for many more years into the future.
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Valuation for FTS Stock
Fortis currently pays a dividend yield of 4.1%. That’s quite attractive compared to the S&P 500 index’s average of just 1.7%.
In terms of earnings, Fortis trades at a price-to-earnings ratio of 20.9. That’s very reasonable given its defensive, low-volatility business model. Investors are willing to pay a premium for stability, especially in uncertain economic times.
Looking at its valuation, Fortis appears fairly valued today. The stock could still deliver market-beating total returns driven by its high dividend yield and steady payout growth. Patient long-term investors can likely continue building income with this top utility stock.
Is Fortis a Buy Before 2024?
Fortis represents an excellent pick for dividend investors before 2024. Its 50-year dividend growth streak is unmatched among Canadian utility peers. Fortis’ guidance to continue hiking payouts by 4-6% annually through 2028 provides income investors valuable visibility.
The stock offers a safe 4.1% dividend yield backed by recession-resistant utility cash flows. Fortis is rated as a lower-risk way to generate passive income that outpaces inflation. Additional upside could also come from steady earnings growth and potential valuation multiple expansion over time.
For conservative investors seeking rising income, Fortis remains a top dividend stock buy. The company’s track record and strong growth outlook make it a compelling investment before next year.