The Unshakeable Appeal of Utility Stocks: Why Fortis Might Be Your Next Long-Term Hold
In a world where market volatility feels like the only constant, investors are increasingly craving stability. And let’s be honest, who can blame them? With inflation stubbornly high and geopolitical tensions simmering, the idea of a stock that lets you sleep soundly at night is more appealing than ever. Enter Fortis (TSX:FTS), a utility giant that’s been quietly humming along for decades, paying dividends like clockwork. But is it really the no-brainer investment it’s made out to be? Personally, I think there’s more to the story than meets the eye.
The Utility Sector’s Unseen Strength: Predictability in Chaos
What makes Fortis particularly fascinating is its business model. As a utility company, it operates in a rate-regulated environment, meaning its revenue is largely predictable. This isn’t just a nice-to-have feature—it’s a game-changer. In a market where tech stocks can swing wildly based on the latest earnings report or geopolitical whisper, utilities like Fortis offer a rare sense of certainty. Nearly 100% of its revenue comes from regulated operations, which means cash flow is as reliable as your monthly electricity bill.
But here’s the kicker: predictability doesn’t mean stagnation. Fortis is currently pouring $28.8 billion into expanding its rate base, aiming to grow it from $42 billion to nearly $59 billion over five years. This isn’t just about maintaining the status quo—it’s about future-proofing the business. And with a 52-year streak of dividend increases, Fortis isn’t just talking the talk; it’s walking the walk.
The AI Boom: A Hidden Tailwind for Utilities
One thing that immediately stands out is how Fortis is positioned to benefit from the AI revolution. Yes, you read that right. AI isn’t just about tech companies—it’s about the infrastructure that powers them. Data centers are energy hogs, and as demand for AI computing skyrockets, so does the need for reliable electricity. Fortis, with its expertise in power generation and grid infrastructure, is perfectly placed to capitalize on this trend.
What many people don’t realize is that Canada’s ambition to become an energy superpower could be a massive tailwind for companies like Fortis. The country’s plan to build a nationwide electricity grid is no small feat, and Fortis has the chops to play a key role. Meanwhile, south of the border, its U.S. operations provide a nice hedge against currency fluctuations. When the U.S. dollar strengthens, Fortis’s earnings get a boost—a detail that I find especially interesting.
The Debt Dilemma: A Double-Edged Sword
But let’s not sugarcoat it—Fortis isn’t without risks. The company relies on debt to fund its growth, which makes it vulnerable to rising interest rates. In 2022, when central banks hiked rates aggressively to combat inflation, utility stocks took a hit. Fortis wasn’t immune, dropping from $64 to $50 per share. If inflation rears its head again, history could repeat itself.
From my perspective, this is where the buy-and-hold strategy gets tested. Fortis is a long-term play, not a get-rich-quick scheme. If you’re the type of investor who panics at the first sign of turbulence, this might not be the stock for you. But if you’re willing to ride out the dips, history suggests you’ll be rewarded.
The Broader Trend: Why Utilities Are More Than Just ‘Boring’
If you take a step back and think about it, the appeal of utilities goes beyond their dividends. In an era of rapid technological change, there’s something comforting about investing in a sector that’s fundamentally necessary. People will always need electricity and gas, regardless of whether we’re in a bull market or a recession.
What this really suggests is that utilities like Fortis are more than just defensive plays—they’re essential infrastructure investments. And as the world grapples with energy transitions, grid modernization, and the demands of a digital economy, companies like Fortis are likely to remain relevant.
Final Thoughts: Is Fortis Worth the Hype?
In my opinion, Fortis is a solid addition to any long-term portfolio, especially for investors prioritizing stability and dividend growth. Yes, there are risks—interest rates, regulatory changes, and the occasional market pullback. But what investment doesn’t come with risks?
What makes Fortis stand out is its ability to adapt and grow in a sector that’s often written off as ‘boring.’ Its exposure to both Canadian and U.S. markets, combined with its strategic position in the AI-driven energy boom, gives it a unique edge.
So, should you buy Fortis? Personally, I think it’s a yes—but with a caveat. This isn’t a stock you buy for quick gains. It’s one you buy, hold, and let compound over decades. And in a world where certainty is hard to come by, that’s a pretty compelling proposition.
