Fortis Inc. (FTS) operates as an electric and gas utility company in Canada, the United States, and the Caribbean countries.
Fortis has managed to increase dividends for 47 years in a row. The last dividend increase was in September 2020, when this utility raised its quarterly dividend by 5.90% to 50.50 cents/share. Over the past decade, Fortis has managed to grow dividends at an annualized rate of 5.80%. In addition, the Corporation has extended its targeted average annual dividend per common share growth of approximately 6% to 2025 based on a 2020 annualized dividend of $1.91. Just for reference, the stock data is listed in Canadian Dollars, not US dollars.
An interesting fact is that Fortis will offer a 2% discount on common share issuances under its dividend reinvestment plan. I am not sure if this works with your regular vanilla brokerage account, but I am eager to find out.
Between 2009 and 2019, Fortis has managed to grow earnings from $1.51/share to $2.67/share. The company is expected to generate $2.58/share in 2020.
Fortis has 2 million electric and 1.3 million gas customers in the US, Canada and the Caribbean. Fortis has been able to grow through acquisitions as well as deploying more money into its capital base. A large portion of acquisitions were paid by stock. Future growth could definitely come from future acquisitions.
Another avenue of growth is by deploying cash in its existing base, and earning an approved rate of return. As a regulated utility, its rates of return are based on regulators. Therefore, the more investment it can get into the system, the more profits can be generated at a given rate of return. Regulators can be tricky, because they may take time to approve rate increases, which may eat into approved rates of return and reduce profitability. Growth in customers and rate base should aid profits, along with rate increases. Fortis has exposure to different state and province regulators in the US and Canada, which is a good level of diversification.
The capital investment plan is expected to be primarily funded with cash from operations (61%), debt raised at the utilities (33%) and common equity from the Corporation's dividend reinvestment plan (6%).
Consolidated rate base is projected to increase from $30.2 billion in 2020 to $36.4 billion in 2023 and $40.3 billion in 2025, translating into three and five-year compound annual growth rates of 6.5% and 6.0%, respectively.
The five-year capital plan includes investments of $5.1 billion at ITC for electric transmission infrastructure to expand system capacity, improve reliability through system upgrades and provide customers access to more cost-effective renewable energy.
At FortisBC, the company expects to invest $4.4 billion in natural gas and electric infrastructure including investments to improve gas line safety and integrity, new natural gas storage to improve resiliency and infrastructure to serve customer-owned LNG export facilities.
At UNS Energy in Arizona, the company expects to invest $3.8 billion in transmission, distribution and generation infrastructure to support a cleaner energy future.
Fortis has been able to grow through acquisitions. A large part of these acquisitions were paid for by issuing stock. As a result, the number of shares outstanding has increased from 174 million in 2009 to 438 million in 2019.
The company has managed to maintain a generally stable level in its dividend payout ratio over the past decade. Long-term growth in earnings and dividends that match should keep the payout ratio within a tight band.
The stock trades at 20.60 times forward earnings and yields 3.85%.
US investors may want to consider holding those shares in a tax-deferred account. Canadian dividends face a 15% withholding in taxable accounts for US residents. However, there is no withholding tax in retirement accounts such as Roth IRA's.
Relevant Articles:
- Dividend Growth Investing My Way To Financial Freedom
- Why I Use Dividend Growth Investing to Get Wealthy
