Is Fortis (TSE:FTS) Still a Buy in 2026 Amid Stagnant ROCE and Rising Debt?

Fortis (TSE:FTS) has long been a staple for income-focused investors, but as we approach 2026, the question looms: Is this utility giant still a buy despite its stagnant capital returns and rising leverage? Let's dissect the numbers, strategies, and risks to determine whether Fortis can justify its place in a long-term portfolio.

The ROCE Conundrum: Efficiency Stagnation in a High-Cost Environment

Fortis's Return on Capital Employed (ROCE) has languished at 5.15% in 2025, a figure that pales in comparison to the returns of its peers in the energy transition. While regulated utilities typically trade on stable cash flows rather than high ROCE, this metric highlights a critical issue: Fortis is generating modest returns on its capital investments. Regulatory constraints, such as New York's 9.5% allowed ROE for Central Hudson, further underscore the limited upside for capital efficiency. For investors, this signals a company operating in a low-margin, capital-intensive sector where growth is dictated by regulators, not market demand.

Debt Trajectory: A Balancing Act Between Growth and Risk

Fortis's debt-to-equity ratio stands at 1.42 as of September 2025 according to Gurufocus, a slight uptick from 1.31 in prior periods according to StockAnalysis. However, the company's $28.8 billion capital plan for 2026–2030 is expected to drive growth in Arizona and British Columbia. On one hand, this aggressive spending on grid modernization and electrification in Arizona and British Columbia is expected to drive a 7% annual rate base growth, supporting its 4–6% dividend growth guidance through 2030 according to Yahoo Finance. On the other, the plan relies heavily on debt financing, with leverage ratios like Debt/EBITDA at 6.09 raising eyebrows.

The key question is sustainability. Fortis claims it will fund most of its capital needs through operating cash flow, avoiding a dilutive equity raise. While its $5.8 billion liquidity cushion provides a buffer, the interest coverage ratio of 2.4 suggests limited flexibility-a measure of how easily the company can meet interest payments-suggests limited flexibility if rates rise further.

Credit Ratings and Financial Health: A Mixed Bag

Morningstar DBRS maintains Fortis Inc.'s credit ratings in the "A" category according to DBRS, a testament to its investment-grade profile. However, the broader Fortis ecosystem reveals mixed signals. For instance, Fortis Bank's probability of default (PD) improved to 4.3% (B rating) by late 2025 according to Martini AI, while Fortis Healthcare Limited boasts a robust interest cover of 8.95 times and a Crisil AA+/Stable rating according to Crisil. These divergent outcomes highlight the complexity of the Fortis brand, which spans utilities, banking, and healthcare. For TSE:FTS specifically, the focus remains on its utility operations, where stable cash flows and regulatory approvals are critical to maintaining creditworthiness.

Dividend Sustainability: A 52-Year Streak at Risk?

Fortis's dividend has grown for 52 consecutive years, a feat that draws income investors. Its current payout ratio of 75.83% according to MarketBeat is high but not alarming, given the utility sector's preference for steady yields over aggressive growth. However, the capital-intensive nature of its 2026–2030 plan raises concerns. If operating cash flow falters due to inflation or regulatory delays, the dividend could face pressure. The company's guidance to maintain growth through 2030 hinges on the assumption that its leverage stays within investment-grade bounds-a bet that could backfire if interest rates spike.

The Verdict: A Buy for the Long Haul?

Fortis is not a high-growth stock, but it's a defensive play in a sector where stability is prized. Its capital plan and regulatory tailwinds offer a clear roadmap for rate base expansion, and its dividend history is a magnet for income seekers. However, the stagnant ROCE and rising debt load are red flags. Investors must weigh the allure of a 4–6% annual dividend against the risks of a leverage-driven growth strategy in a high-interest-rate environment.

For those with a 10-year horizon and a tolerance for moderate risk, Fortis remains a buy-but with caution. The company's ability to execute its capital plan without derailing its credit profile will be the key test in 2026. If it succeeds, the dividend growth story continues. If it falters, the stock could underperform.