Fortis (FTS) Q1 Results: A Solid Foundation Amid Regulatory Gains and Dividend Discipline

Fortis Inc. (FTS) delivered a resilient first-quarter 2025 performance, reporting net earnings of CAD 499 million (CAD 1.00 per share), narrowly missing the FactSet consensus of CAD 1.01 but reflecting a 7.1% revenue surge to CAD 3.338 billion. While the EPS miss was marginal, the quarter underscored the utility giant’s strategic execution in regulated infrastructure growth, regulatory wins, and dividend sustainability. Below, we dissect the key drivers, risks, and implications for investors.

Revenue Growth Outperforms Expectations

Fortis’ top-line expansion, up 7.1% year-over-year, was fueled by rate base growth, favorable U.S.-Canadian exchange rates, and the conclusion of Central Hudson’s 2024 rate case. The revenue increase outpaced the prior-year’s CAD 3.118 billion, signaling operational resilience. This growth aligns with Fortis’ CAD 12 billion full-year 2024 revenue and its CAD 26 billion five-year capital plan, which aims to grow midyear rate base from CAD 39.0 billion in 2024 to CAD 53.0 billion by 2029 (6.5% CAGR).

Capital Allocation and Regulatory Momentum

The quarter’s CAD 1.4 billion in capital expenditures kept the company on track for its CAD 5.2 billion annual target. Key projects include:- MISO LRTP Tranche 2.1: A CAD 3.7–4.2 billion investment in electric transmission.- FortisBC’s Tilbury LNG expansion and renewable gas initiatives.- Grid resiliency upgrades in British Columbia and New York.

Regulatory wins were pivotal. The British Columbia Utilities Commission’s approval of FortisBC’s 2025–2027 rate framework provided three-year stability, including an innovation fund for cleaner energy. Moody’s and DBRS reaffirmed Baa3 and A (low) ratings, respectively, underscoring creditworthiness.

Dividend Growth: A 51-Year Streak Continues

Fortis reiterated its 4–6% annual dividend growth target through 2029, supported by regulated utility predictability and rate base expansion. With a current dividend yield of ~4.5%, the company’s 51-year streak of consecutive increases positions it as a cornerstone for income-focused portfolios. Management emphasized this commitment despite macroeconomic headwinds, citing a CAD 53 billion rate base target as the bedrock for shareholder returns.

Environmental Progress and Risks

Fortis reduced direct GHG emissions by 34% since 2019, advancing toward a 50% cut by 2030 and net-zero by 2050. However, risks linger:- UNS Energy’s underperformance: Lower wholesale margins in Arizona shaved CAD 0.03 off EPS.- Regulatory uncertainty: U.S. foreign trade policies and legislative actions (e.g., Iowa’s ROFR legislation) could impact costs.- Exchange rate sensitivity: A 5-cent shift in USD/CAD could alter five-year capital expenditures by CAD 600 million.

Stock Performance and Valuation

Despite the minor EPS miss, Fortis’ stock has risen ~6% year-to-date (YTD), outperforming the S&P/TSX Utilities Index. However, its 12-month forward P/E of 18.5x remains elevated compared to historical averages. Investors may await further clarity on U.S. regulatory outcomes and rate base execution.

Conclusion: A Steady Hand in Volatile Markets

Fortis’ Q1 results highlight a disciplined strategy in regulated growth and dividend reliability, despite minor headwinds. With CAD 75 billion in total assets, a fortress balance sheet, and a CAD 26 billion capital plan, the utility is well-positioned to navigate macro risks while delivering returns. Environmental commitments and regulatory wins further solidify its long-term moat.

For income investors, the 4–6% dividend growth trajectory and 51-year streak remain compelling, especially in a low-yield environment. While risks like U.S. policy shifts and exchange rate volatility persist, Fortis’ diversified regulated portfolio and execution track record suggest it remains a defensive, growth-oriented utility play.

In a sector where stability trumps volatility, Fortis’ fundamentals—7.1% revenue growth, 34% emissions cuts, and CAD 53 billion rate base ambition—make it a top-tier investment for the long haul.