I had this view long before the AI hype train left the station. But it is also true that this period of market exuberance has certainly helped Fortis and other major players in the utility sector with frequent expansion and rising share prices. The above graph tells a nice story on this front.
That said, I’d like to touch on two key reasons why I think Fortis could be a great long-term holding even if the whole AI story falls apart tomorrow.
Let’s dive in.
A defensive business model is very valuable
In this uncertain market environment, with economic data in most developed economies around the world remaining weak, few sectors feel safe to invest in.
And while there has certainly been some aforementioned multiple expansion with companies like Fortis taking advantage of expectations around rising electricity demand thanks to the rise of AI and other technologies, it’s also true that Fortis’ core businesses are about as recession-proof as they come.
Fortis provides electricity and natural gas services to millions of residential and commercial customers and will continue to benefit from long-term regulated contracts, which over time provide stable cash flows and meaningful growth. That is a dynamic that will not change, and it is, in my opinion, one of the reasons why Fortis is trading at its current price.
The dividend growth profile is unparalleled
The other key factor that I think makes Fortis one of the most important utilities to consider is the fact that this particular player has an unparalleled track record, at least in the Canadian utilities sector, of increasing its dividend.
With a 51-year record behind it and many more decades of dividend growth to come, Fortis remains my top pick for dividend stocks because of this forward-looking forecast. Yes, Fortis’s yield is currently around 3.7%. That’s not bad, but it’s certainly not a return that many investors can write home about.
But it’s the company’s dividend growth that will ultimately be more important to those with a two- or three-decade investment horizon. For such investors, buying this stock over time and holding it is a strategy that I think makes sense, especially now.
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