Fortis Inc.: A Solid Pick for Income Investors

Fortis Inc. (TSX:FTS)(NYSE:FTS) has had an acquisitive nature since its inception, giving it the ability to grow the dividend on a regular basis. This is great for income investors.

| More on:
electric power transmission

Licence: https://creativecommons.org/licenses/by/2.0/ Source: https://en.wikipedia.org/wiki/File:Romanian_electric_power_transmission_lines.jpg

Utilities are such fascinating companies. On one hand, they’re incredibly boring companies because they don’t really have much opportunity to grow. On the other hand, their revenue is predictable, which puts them in a great place to pay lucrative yields to investors. However, there’s one company that turns the whole boring stereotype on its head.

Fortis Inc. (TSX:FTS)(NYSE:FTS) is one of the 15 largest utilities in North America with assets in Canada, the United States, and the Caribbean. It has grown into this behemoth thanks to a series of very smart acquisitions.

One thing that’s important to understand is, while the company is not boring thanks to the acquisitions, it is a regulated utility, which means that its earnings are stable and predictable.

To understand how aggressive its acquisitions have been, consider this: when Fortis formed in 1987, it had $390 million in assets, which was significant even in 1987. Now, 30 years later, it now has $48 billion in assets.

It first started expanding in 2003 into western Canada. It gained 415,000 Albertan customers by 2005, which was a big boost for the company. It made a series of other acquisitions throughout Canada and the Caribbean, expanding its customer base.

Fortis got really bullish when it expanded into the United States. It first tried to buy the Central Vermont Public Service for US$700 million in May 2011; however, it was outbid. In the beginning of 2012, Fortis announced that it was acquiring CH Energy Group for US$1.5 billion. By the summer, that deal had closed, and Fortis had a foothold in the United States. At the time, this gave it 300,000 electric customers and 75,000 natural gas customers.

In 2013, it acquired UNS Energy, a large Arizona utility company. This US$4.3 billion deal gave it 152,000 natural gas customers and 511,000 electricity customers. This deal also gave Fortis increased exposure to renewable sources.

The big acquisition just closed in October 2016. Fortis and a private investment group acquired ITC Holdings Corp. for US$11.3 billion, which was, at the time, the largest independent electric transmission company in the United States. This gave Fortis exposure to the American Midwest.

Now, Fortis has over three million customers, which has made it possible for Fortis to be incredibly shareholder friendly.

For more than 40 consecutive years, Fortis has increased its dividend. On average, the company has increased it by more than 5% each year for the past decade. In Q4 2016, alone, Fortis increased the dividend by 6.7%. Management predicts that it will be able to hike the dividend at an annual rate of 6% between now and 2021.

The only problem with Fortis is that it is expensive, which makes perfect sense because of its predictability. Although it’d be better to buy this stock when the yield was a little higher, as Warren Buffett says, “it is far better to buy a wonderful company at a fair price than a fair company at a wonderful price.” I agree.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Jacob Donnelly has no position in any stocks mentioned.

More on Dividend Stocks

young woman celebrating a victory while working with mobile phone in the office
Dividend Stocks

3 CRA Benefits Most Canadians Can Grab in 2024

You can save on taxes by claiming the dividend tax credit on Fortis Inc (TSX:FTS) shares.

Read more »

Two seniors float in a pool.
Dividend Stocks

TFSA: How to Earn $1,890 in Annual Tax-Free Income

Plunk these investments into your TFSA to earn passive income and avoid the taxman.

Read more »

Engineers walk through a facility.
Dividend Stocks

1 TSX Stock I Wouldn’t Touch With a 10-Foot Pole

AtkinsRéalis (TSX:ATRL) is one TSX stock I'd never invest in.

Read more »

edit Woman in skates works on laptop
Dividend Stocks

3 No-Brainer Stocks to Buy Under $30

These three stocks all offer a huge deal for investors looking for dividends, as well as growth that will last.

Read more »

You Should Know This
Dividend Stocks

How to Convert a $300 Monthly Investment Into $338 in Monthly Income

If you want a certain amount in monthly passive income, invest a similar amount today and leave the rest to…

Read more »

Increasing yield
Dividend Stocks

3 Income Stocks With Big Yields to Consider in April 2024

If you haven’t yet made your March investments, here are three income stocks to buy the dip and lock in…

Read more »

Senior Man Sitting On Sofa At Home With Pet Labrador Dog
Dividend Stocks

RRSP Investors: Don’t Miss Out on This Contribution Hack!

This hack has so many benefits for you -- not just when you put it in your RRSP but for…

Read more »

A red umbrella stands higher than a crowd of black umbrellas.
Dividend Stocks

Passive Income: 2 Safe Dividend Stocks to Own for the Next 10 Years

Dividend stocks such as Manulife and Fortis can help you generate a stable and recurring passive-income stream.

Read more »