Fortis Inc. (FTS): SWOT Analysis [Nov-2025 Updated]

You're holding a classic, low-volatility utility stock, but Fortis Inc. is at a pivot point: they're funding their largest-ever capital plan, a move that locks in growth but stresses the balance sheet now. This isn't just about keeping the lights on; it's a $28.8 billion bet on the future of North American energy infrastructure, so understanding the trade-offs between their rock-solid regulated cash flow and the near-term $5.6 billion capital spend in 2025 is defintely the key to your investment decision.

Strengths: The Foundation of Predictable Growth

Fortis Inc. has built a fortress on cash flow predictability. Their portfolio is 100% regulated, which means revenue streams are highly stable, unlike merchant power generators exposed to volatile energy prices. This stability underpins their incredible track record: 52 consecutive years of dividend increases, a top-tier feat in the utility sector.

The biggest strength right now is the sheer scale of their planned investment. The company's largest-ever capital plan, totaling $28.8 billion from 2026 through 2030, is set to drive a compounding 7.0% annual growth in their rate base (the asset value on which they can earn a regulated return). Plus, their geographic diversification across 16 jurisdictions in North America and the Caribbean acts like a natural hedge against specific regional economic or regulatory downturns. You can rely on that cash flow.

Weaknesses: Funding the Future is Expensive

The primary near-term issue is the pressure on free cash flow (FCF) caused by the massive spending. Here's the quick math: capital expenditures are expected to hit about $5.6 billion for the 2025 fiscal year. That's a lot of cash going out the door, which means less FCF available to shareholders right now. What this estimate hides is the need for external financing-either debt or equity-to cover that gap.

Also, the dividend payout ratio is high, sitting around 71-77% as of 2025. This constrains the amount of retained earnings they can use to fund the capital plan internally, forcing them to tap capital markets more often. Elevated leverage is a noted risk, and honestly, managing the balance sheet while executing this plan will be a tightrope walk. Finally, with significant U.S. operations, earnings are subject to foreign exchange volatility, which can create unwelcome noise in quarterly reports.

Opportunities: The AI and Green Energy Tailwinds

The energy transition and the Artificial Intelligence (AI) boom are huge, unexpected tailwinds for Fortis. Data centers, driven by AI, require massive, reliable power, and Fortis is perfectly positioned to capture that demand in its service territories. About $6.7 billion of the capital plan is already dedicated to energy transition projects, specifically connecting renewables and storage to the grid.

Beyond the core plan, transmission expansion projects-like those tied to the MISO Tranche 2.1 initiative-offer incremental growth that isn't fully baked into the $28.8 billion forecast. These projects let Fortis earn a return on assets that move power across state lines, a high-value business. Ongoing rate base expansion and new customer rates, especially in the growing U.S. jurisdictions, will consistently boost future earnings.

Threats: Regulatory and Financial Headwinds

The biggest financial threat is the interest rate environment. Rising interest rates increase the cost of financing that substantial $28.8 billion capital program, directly impacting the return on investment. If the cost of debt rises faster than the allowed return on equity (ROE), the profit margin shrinks.

Adverse regulatory outcomes are always a risk in this business. Regulators in key jurisdictions could reduce the allowed ROE or disallow certain capital expenses, which would directly cut into Fortis's earnings. Plus, the sheer scale of the record capital plan introduces execution risk; managing thousands of simultaneous projects over several years is a massive operational challenge. Finally, extreme weather events and climate-related costs-think major storm hardening or wildfire mitigation-strain utility infrastructure and force unplanned, unrecoverable capital spending.

Fortis Inc. (FTS) - SWOT Analysis: Strengths

52 Consecutive Years of Dividend Increases, a Top-Tier Record

You're looking for stability, and Fortis Inc. delivers it with a track record that is defintely top-tier in North America. The company has increased its annual dividend for 52 consecutive years, a monumental streak that few companies, let alone utilities, can match. This consistency is the clearest signal of management's discipline and the underlying strength of its cash flow.

In November 2025, Fortis announced a 4.1% increase to its quarterly dividend, raising it from $0.615 to $0.640 per common share. That puts the annualized payout at $2.56 per share. The company has also extended its guidance for annual dividend growth to a range of 4% to 6% through 2030, which is a clear, actionable roadmap for income-focused investors. Here's the quick math: a consistent 6% growth rate means your dividend income could double in about 12 years.

100% Regulated Utility Portfolio Ensures Highly Predictable Cash Flow

The core strength of Fortis is its business model: it is a 100% regulated utility portfolio. This is crucial because it means revenue and earnings are not subject to the wild swings of commodity prices or economic cycles. Instead, they are predictable, stable, and approved by regulatory bodies.

The vast majority-approximately 94%-of Fortis's assets are dedicated to the low-risk transmission and distribution of electricity and natural gas. This focus on infrastructure, rather than generation, is why the cash flow is so reliable. For context, this stability helped drive adjusted earnings per share (EPS) to $0.87 in Q3 2025, a slight but steady increase from $0.85 in Q3 2024. This is the definition of a defensive moat.

Largest-Ever Capital Plan of $28.8 Billion (2026-2030) Drives 7.0% Annual Rate Base Growth

A utility's growth is tied directly to its rate base (the asset value on which regulators allow it to earn a return). Fortis is putting its money where its mouth is with a record-breaking $28.8 billion capital plan for the 2026-2030 period. This investment is expected to increase the midyear rate base from an estimated $41.9 billion in 2025 to $57.9 billion by 2030.

This massive, low-risk investment is forecast to drive a 7.0% compound annual growth rate (CAGR) in the rate base through 2030. That 7.0% growth is the engine for future earnings and, critically, the support for the projected 4-6% annual dividend increases. For the current year, 2025, the company expects to deploy $5.6 billion in capital expenditures, keeping the momentum strong.

Diversified Geographic Footprint Across 16 Jurisdictions in North America and the Caribbean

The company's geographic diversification is a key risk-mitigation strength, preventing any single regulatory environment from derailing the entire business. Fortis operates nine regulated utilities across 16 jurisdictions in Canada, the United States, and the Caribbean. You don't want all your eggs in one regulatory basket.

The diversification is strategically weighted toward the U.S., which offers attractive regulated returns. Approximately 63% of the new $28.8 billion capital plan is allocated to U.S. operations, primarily through its ITC and Tucson Electric Power subsidiaries. This geographic spread helps insulate the company from adverse regulatory decisions in any one area, like the recent rate case approvals in New York and Arizona, which provide clarity on near-term investment returns. Fortis serves a total of 3.5 million electricity and natural gas customers, making it a major North American utility player.

The key areas of operation include:

• U.S. Operations: Arizona, New York, and the ITC transmission footprint across several Midwest states.
• Canadian Operations: Alberta, British Columbia, Ontario, Prince Edward Island, and Newfoundland.
• Caribbean Operations: Assets retained in the Cayman Islands.

Fortis Inc. (FTS) - SWOT Analysis: Weaknesses

High Capital Expenditures Pressure Near-Term Free Cash Flow

You need to see the capital plan for what it is: a massive, necessary investment that eats up near-term cash. Fortis Inc.'s planned capital expenditures for the 2025 fiscal year are expected to reach approximately $5.6 billion, a significant increase from the previous forecast. This spending is crucial for regulated rate base growth, but it creates a substantial drag on immediate liquidity.

Here's the quick math: For the trailing twelve months (TTM) ending in 2025, Fortis Inc.'s operating cash flow was around $2.88 billion, but capital expenditures were higher at $4.27 billion, resulting in a negative free cash flow (FCF) of approximately -$1.38 billion. This negative FCF means the company must rely on external financing-debt or equity-to cover its dividend and growth spending, which is a classic utility trade-off, but a weakness nonetheless.

High Dividend Payout Ratio Constrains Retained Earnings

The commitment to 52 consecutive years of dividend increases is a strength for shareholders, but it's a clear constraint on the balance sheet. The dividend payout ratio for Fortis Inc. remains elevated, sitting at approximately 77% as of September 2025, or around 73.1% on a trailing twelve-month basis.

This payout ratio is high, especially when compared to the Utilities - Regulated industry median of 53%, placing Fortis Inc. worse than over 74% of its peers. A high payout ratio limits the amount of retained earnings (the profit kept by the company) that can be reinvested directly into the business without issuing new debt or equity. Honestly, the dividend is safe, but it's a major use of capital that reduces financial flexibility.

The Payout Ratio is a key metric for utility investors:

• Current Payout Ratio (Sep 2025): 77%
• Industry Median Payout Ratio: 53%
• Implication: Less retained earnings for internal funding.

Elevated Leverage Requires Disciplined Balance Sheet Management

Fortis Inc. has a significant debt load, which is typical for a capital-intensive utility, but the level is elevated and warrants close monitoring. The Debt-to-Equity ratio is high at approximately 129.8% (or 1.31) as of the most recent data. The total debt is substantial, reaching about CA$34.1 billion.

This leverage is a noted risk, particularly in a higher interest rate environment. The Interest Coverage Ratio-which measures how easily the company can pay interest on its outstanding debt-is low at only 2.4x. Plus, the debt is not well covered by operating cash flow, which sits at only 11.8% coverage. While the Funds From Operations (FFO)-to-debt ratio improved to 12.2% for the 12 months ending September 2025, supporting a stable credit outlook, the absolute level of debt is a headwind.

Earnings Subject to Foreign Exchange Volatility

Because Fortis Inc. is a Canadian-based company with extensive U.S. operations, a significant portion of its earnings are denominated in U.S. dollars (USD), creating foreign exchange (FX) volatility risk. Approximately 64% of the company's assets are located in the U.S., and the new capital plan allocates 63% of its spending to U.S. operations.

When the U.S. dollar strengthens against the Canadian dollar (CAD), it can boost reported Canadian dollar earnings, which is what happened in the first quarter of 2025 when the higher USD-to-CAD exchange rate favorably impacted earnings. For example, Fortis Inc. picked up $0.06 per share on foreign exchange conversions year-to-date in 2025. However, this is a double-edged sword; a weakening USD would reverse this effect, creating an unpredictable earnings component that is outside of management's operational control. This FX exposure makes the Canadian dollar earnings defintely less stable.

Fortis Inc. (FTS) - SWOT Analysis: Opportunities

The core opportunity for Fortis Inc. is the predictable, regulated growth driven by massive infrastructure spending, which is now supercharged by two major trends: the energy transition and the explosive electricity demand from new data centers. Your rate base is set to grow from $41.9 billion in 2025 to $57.9 billion by 2030, a solid 7.0% compound annual growth rate (CAGR).

Capitalize on the Artificial Intelligence (AI) boom driving massive data center electricity demand.

The AI revolution is translating directly into a significant, long-term power demand surge, which is a massive tailwind for a regulated utility like Fortis. Data centers, especially those supporting complex AI computations, require staggering amounts of reliable electricity. Your subsidiary, ITC Holdings Corp., is already capitalizing on this.

The immediate, tangible opportunity is seen in the load growth pipeline. ITC has a potential for over 8,000 MW of load growth for proposed data centers and economic expansion in various stages of development. For instance, a transmission upgrade is underway to serve up to 1,600 megawatts (MW) of new data center load at the Big Cedar Industrial Center in Iowa alone. This is not a hypothetical; it's a concrete project that requires new transmission investment and will drive future rate base growth.

$6.7 billion of the capital plan is dedicated to energy transition, connecting renewables and storage.

The transition to cleaner energy is a mandated investment, which means it's low-risk and regulated, translating into reliable returns. Fortis is strategically positioned to be the key enabler of this transition by building the necessary transmission and distribution infrastructure.

Of the prior capital plan (2025-2029), approximately C$6.7 billion was earmarked for energy transition investments. This capital is focused on interconnecting new renewable generation sources to the grid, investing in battery energy storage systems, and developing new natural gas initiatives. For example, Tucson Electric Power (TEP) placed the Roadrunner Reserve 1 battery storage project in service in July 2025, which is a 200 megawatt (MW) system capable of storing 800 MW hours of energy. These investments are the defintely the backbone of future rate base growth.

Transmission expansion projects (e.g., MISO Tranche 2.1) offer incremental growth beyond the $28.8 billion plan.

Your current $28.8 billion five-year capital plan (2026-2030) is already robust, but the real opportunity lies in the incremental projects that are not yet fully funded or included in that number. This is where the MISO Long-Range Transmission Plan (LRTP) Tranche 2.1 comes in.

The total estimated capital expenditures for MISO Tranche 2.1 projects-where ITC has rights of first refusal (ROFR) in Michigan and Minnesota, plus system upgrades in Iowa-is in the range of US$3.7 billion to US$4.2 billion. Critically, the current $28.8 billion plan only includes US$0.4 billion for these Tranche 2.1 projects. This means a potential US$3.3 billion to US$3.8 billion in additional, high-quality regulated investment is available just from this one tranche, plus more post-2030.

Here's the quick math on the MISO Tranche 2.1 opportunity:

Ongoing rate base expansion and new customer rates, especially in the U.S., boost earnings.

The predictable earnings growth is fundamentally tied to the rate base expansion, which is driven by your capital spending. The U.S. segment is a key driver here, contributing significantly to recent performance.

In the third quarter of 2025, regulated utility growth from U.S. operations contributed $0.09 per share to adjusted earnings per share (EPS) growth, representing half of the total year-over-year improvement. This steady improvement is secured by constructive regulatory outcomes. For instance, the New York State Public Service Commission approved a three-year rate plan for your subsidiary Central Hudson, which includes a favorable allowed Return on Equity (ROE) of 9.5%, effective retroactively to July 1, 2025.

These new rates and the underlying capital expenditure ensure a clear runway for earnings growth. The regulatory backdrop is constructive.

• U.S. operations drove $0.09/share of Q3 2025 EPS growth.
• Central Hudson secured a 9.5% allowed ROE in its new rate plan.
• Rate base is projected to grow 7.0% annually through 2030.

Fortis Inc. (FTS) - SWOT Analysis: Threats

You're looking at Fortis Inc. (FTS) and seeing a steady, regulated utility, but even the steadiest ship faces headwinds. The biggest threats right now center on the cost of their massive growth plan and the ever-present risk from regulators and Mother Nature. We need to focus on what could actually derail the projected 7.0% annual rate base growth through 2030.

Rising interest rates increase the cost of financing the substantial $28.8 billion capital program.

The company's new five-year capital plan for 2026-2030 is a record $28.8 billion, an increase of $2.8 billion over the prior plan. That's a huge number, and while the majority is funded internally, a significant portion still relies on external financing.

The plan is funded 30% by new debt, which means every tick up in the Federal Reserve's rate directly translates to higher holding company finance costs, a factor that already partially offset earnings in the first quarter of 2025. Even though Fortis Inc. issues most debt at the utility level, which helps, sustained high interest rates will defintely erode the net return on the $5.6 billion in capital expenditures expected for the full year 2025.

Adverse regulatory outcomes in key jurisdictions could reduce allowed returns on equity (ROE).

Regulatory risk is the core threat for any utility, and a hostile decision can immediately reduce allowed profits. While Fortis Inc. has a resilient profile, we've seen recent pressure points. For instance, FortisAlberta experienced a lower allowed ROE effective January 1, 2025, which contributed to lower earnings there.

The regulatory process is continuous, and a negative ruling in a major jurisdiction like Arizona, where Tucson Electric Power (TEP) filed a general rate application in June 2025, could materially impact future earnings. What this estimate hides is the potential for a commission to disallow certain capital expenditures from the rate base, meaning the company invests the money but can't earn a return on it, which is the worst-case scenario.

Here's a quick snapshot of recent allowed ROE figures:

• Central Hudson (New York): 9.5% allowed ROE, approved in August 2025.
• FortisBC: 9.65% allowed ROE for 2025 net earnings.
• FortisAlberta: Experienced a lower allowed ROE in 2025.

Execution risk associated with the sheer scale of the record capital plan.

The sheer size of the $28.8 billion capital plan, which is the largest in the company's history, introduces execution risk. Although management has characterized the plan as 'highly executable' with 100% regulated investments, large, multi-year projects are complex. Supply chain disruptions and labor shortages remain a concern for investors, which could lead to cost overruns or delays.

The plan is heavily weighted toward infrastructure, which is good, but any delay in a major project can push back when the company starts earning a return on that asset.

• Total Capital Plan: $28.8 billion (2026-2030).
• Major Projects: Only 11 major capital projects, representing 21% of the plan.
• Transmission Focus: ITC's capital plan is $9.8 billion, the largest in its history, supporting 8% rate base growth.

Extreme weather events and climate-related costs strain utility infrastructure and operations.

Climate change means more frequent and intense extreme weather events, which directly threaten utility infrastructure and service reliability. Fortis Inc. has acknowledged this threat and is investing to enhance grid resilience, but the costs are substantial and ongoing.

While Fortis Inc.'s virtually 100% regulated model allows for cost recovery mechanisms to mitigate the financial impact, the immediate operational strain and the risk to service reliability are real. For example, FortisBC is investing a record $694.8 million in advanced energy-efficiency initiatives between 2024-2028, a significant capital outlay driven by climate and energy transition goals. The primary risk is that service reliability could be negatively impacted due to increased climate hazards and greater demand during warmer summers, leading to regulatory scrutiny or customer backlash.