The Canadian government introduced Tax-Free Savings Accounts (TFSAs) in 2009 to encourage Canadians to save more. These accounts allow investors to earn tax-free returns on a specified amount each year, known as the contribution limit. For this year, the contribution limit is $7,000. Meanwhile, for individuals who were 18 years or older in 2009 and have never contributed, the cumulative contribution room has grown to $109,000.
However, investors should exercise caution when investing through their TFSA. If a stock declines and is sold at a loss, it not only erodes capital but can also permanently reduce the available contribution room.
Against this backdrop, amid rising geopolitical tensions and increased volatility in equity markets, investors may consider adding quality dividend stocks to their TFSA to strengthen their portfolios while generating stable passive income. With that in mind, let’s assess Fortis’s business outlook, growth prospects, dividend history, and valuation to determine whether it would be a suitable addition to your TFSA right now.
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Fortis’s business outlook
Fortis (TSX:FTS) is a Canadian electric and natural gas utility company that operates nine regulated utilities across the United States, Canada, and the Caribbean, serving about 3.5 million customers. With 100% of its assets regulated, 95% of which are in the low-risk transmission and distribution business, the company’s financial performance is relatively insulated from economic cycles and market volatility. In addition, Fortis has consistently expanded its rate base and improved operating efficiencies, supporting steady financial and share price growth.
Over the past 20 years, Fortis has delivered an impressive average total shareholder return of 10.4%, outperforming the broader equity markets. The utility has also rewarded investors with 52 consecutive years of dividend increases and currently offers a dividend yield of about 3.3%.
Moreover, the company reported solid fourth-quarter results last month, posting net income to $422 million. After adjusting for one-time or special items, its adjusted net income was $453 million, while adjusted EPS (earnings per share) was $0.90, up 8.4% from the previous year. The company also continued to expand its rate base, bringing $5.6 billion worth of projects into service last year. Now, let’s take a closer look at its growth prospects.
Fortis’s growth prospects
Amid the electrification of the transportation sector, rising investments in artificial intelligence-ready data centres and increasing economic activity, energy demand is expected to grow, thereby expanding the addressable market for Fortis. Meanwhile, Fortis plans to invest $28.8 billion over the next five years to expand its rate base at an annualized rate of 7%, reaching $57.9 billion by the end of 2030.
Alongside these expansion initiatives, the company is investing in energy transition projects to reduce fuel consumption and implementing efficiency programs to improve operations. These efforts could support steady earnings growth in the coming years. In addition, Fortis expects to fund about 59% of these capital expenditures through cash generated from operations and another 11% through dividend reinvestment plans, which should limit the need for additional debt.
Supported by these growth initiatives and its strong financial position, Fortis’s management expects to increase its dividend at an annualized rate of 4–6% through 2030.
Investors’ takeaway
Supported by healthy quarterly results and a lower interest rate environment, Fortis has seen strong buying over the past 12 months, with its stock price rising 22.4%. This rally has pushed its valuation higher, with the company currently trading at NTM (next 12 months) price-to-sales and NTM price-to-earnings multiples of 3 and 21.6, respectively.
Although its valuation has risen notably in recent months, I believe Fortis remains an attractive investment at current levels, given its resilient underlying business, visible growth prospects, and long track record of consistent dividend increases.