Fortis (TSX:FTS) is a well-diversified leader in the North American regulated electric and gas utility industry. The stock recently unveiled its 2024-2028 outlook, which provides investors with a glimpse of what the future holds for the company.
With a capital plan of $25.0 billion for the next five years, Fortis stock aims to achieve a 6.3% rate base growth. This increase, which is $2.7 billion higher than the previous five-year plan, represents a significant opportunity for investors and raises the question: where should Fortis stock be in five years?
A history of strength
Fortis stock’s unique position in the market is built on its management of regulated electric and gas utilities and independent transmission assets across North America. Its acquisitions have strategically positioned the company predominantly in the U.S. utility sector, with its prized asset, ITC Holdings, playing a crucial role in its growth.
ITC Holdings offers Fortis stock a remarkable opportunity to tap into a long runway of U.S. transmission investment opportunities, ranging from modernizing aging infrastructure to supporting the growth of renewable energy sources. The regulatory environment for ITC is favourable, with allowed returns on equity exceeding state-allowed returns and forward-looking ratemaking reducing regulatory lag. This puts ITC in a strong position to secure additional transmission investments, particularly within the Midwest Independent System Operator (MISO) region.
MISO opens doors for substantial investments. This includes a recently announced set of projects in its long-range transmission plan with an estimated cost of $10 billion. Plus, ITC estimates its total investment opportunity in MISO to be as high as $1.8 billion. The potential for even larger future projects adds to the company’s growth prospects.
Additionally, Fortis’s subsidiary, UNS Energy, benefits from population growth and the transition to cleaner energy sources in Arizona. Regulatory outcomes in the state are positive signs for investors. This includes a recent decision allowing for a 9.55% allowed return on equity,
A low-risk Dividend King
In contrast, Fortis’s Canadian operations are relatively low risk. However, they offer stable earnings and support consistent dividend growth. The returns in Canada are lower due to a lower cost of capital compared to the United States. Yet the company’s management continues to focus on capital investment opportunities.
This should contribute to a 6% annual rate base growth over the next five years. The company plans to invest over $24 billion through 2027. This includes a significant focus on its three largest utilities: ITC, Fortis BC, and UNS Energy.
Fortis’s announcement of a 4.4% increase in the quarterly dividend marks 50 years of consecutive dividend increases. This showcases the company’s commitment to rewarding its shareholders. The annual dividend-growth guidance of 4-6% extended to 2028 adds to the appeal for income investors. That leads us right through the next five years.
Fortis stock’s future looks promising. This is driven by its strategic capital plan, focused growth areas, and a commitment to providing cleaner and more affordable energy. The company has a track record of consistent dividend growth and a strong position in the North American utility sector. This makes it an attractive prospect for long-term investors. Fortis stock’s performance in the coming years will undoubtedly be a topic of interest — especially for investors seeking stable returns and growth potential.
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* Returns as of 10/10/23
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