Yawn All the Way to the Bank With Fortis Inc.

Fortis Inc. (TSX:FTS) is a boring stock. Maybe boring is what your portfolio really needs right about now.

| More on:
The Motley Fool

Over the last six months, it’s been a tough time for Canadian investors. It seems like everything is down. The TSX Composite is down nearly 18% over that time and is approaching a 25% loss from highs last set in 2014.

There’s every indication this volatility is going to continue, too. Commodity prices keep slipping. Persistently low interest rates are hurting the banks. And news from China seems to be getting more bearish by the day. It’s little wonder why many investors are shunning former high-flyers in favour of the tried and true.

Fortis Inc. (TSX:FTS) is one such “boring” stock. Here’s why it makes sense to ride out the storm in its shares.

Decent value

Fortis has really been helped by its U.S. assets. As the Canadian dollar continues to depreciate against the greenback, steady results in local currency start to look really good when converted back to Canuck bucks.

In its most recent quarter, Fortis delivered profits of $0.54 per share–a huge improvement over the $0.06 per share posted at the same time last year. Sure, last year’s results were weighed down by special items, but operating income still more than doubled. And Fortis was still able to deliver that impressive per-share earnings growth even after issuing nearly 70 million shares to pay for the acquisition of those U.S. assets.

Shares currently trade at 14.6 times trailing earnings, a number which is a little skewed because of a one-time gain from its real estate portfolio. Stripping out that item, shares are at approximately 18 times earnings, which is still a reasonable valuation for a company that’s become almost a bond-like substitute.

That dividend

Fortis’s dividend is a big reason why most investors are in the stock.

Who can blame them? Fortis currently holds the championship for being the Canadian company with the longest streak of dividend increases. The company has delivered dividend growth for 42 consecutive years, starting in 1973. That’s the kind of commitment dividend-growth investors like to get behind.

There’s every indication this streak will continue for years to come. Analysts expect Fortis to earn $2.17 per share in 2016, putting the payout ratio at a comfortable 70%. As long as Fortis can continue to grow earnings at a pace slightly higher than inflation–a task that doesn’t seem particularly hard–then it can continue to give investors their annual raise.

Plus, Fortis offers a great current yield to go with that growth. Current weakness in the price has pushed the yield up past 4%–something that doesn’t happen very often.

Stability

Fortis isn’t nearly as volatile as the overall market. According to Google Finance, it has a beta of just 0.04, making it one of the most stable stocks out there.

If you need more evidence, just look at the stock price. Over the last year, shares are down only 7.2%, less than half of the decline of the overall market. If you include dividends received during that time period, the stock is barely down at all.

As I write this, the TSX Composite has lost 7.4% thus far in 2016. Fortis has lost just 1%. That’s the kind of stability that looks really good in a portfolio right about now.

Stocks like Fortis are usually shunned during good times. They’re boring, so investors are more likely to own something sexier. It’s times like now when the reason for owning Fortis becomes painfully obvious. Its stability and consistent dividend growth make it the perfect boring stock for today’s tumultuous times.

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 Nelson Smith has no position in any stocks mentioned.

More on Dividend Stocks

money goes up and down in balance
Dividend Stocks

This 6% Dividend Stock Is My Top Pick for Immediate Income

This Canadian stock has resilient business model, solid dividend payment and growth history, and a well-protected yield of over 6%.

Read more »

ways to boost income
Dividend Stocks

1 Excellent TSX Dividend Stock, Down 25%, to Buy and Hold for the Long Term

Down 25% from all-time highs, Tourmaline Oil is a TSX dividend stock that offers you a tasty yield of 5%…

Read more »

Start line on the highway
Dividend Stocks

1 Incredibly Cheap Canadian Dividend-Growth Stock to Buy Now and Hold for Decades

CN Rail (TSX:CNR) stock is incredibly cheap, but should investors join insiders by buying the dip?

Read more »

bulb idea thinking
Dividend Stocks

Down 13%, This Magnificent Dividend Stock Is a Screaming Buy

Sometimes, a moderately discounted, safe dividend stock is better than heavily discounted stock, offering an unsustainably high yield.

Read more »

Canadian Dollars bills
Dividend Stocks

Invest $15,000 in This Dividend Stock, Create $5,710.08 in Passive Income

This dividend stock is the perfect option if you're an investor looking for growth, as well as passive income through…

Read more »

A Canada Pension Plan Statement of Contributions with a 100 dollar banknote and dollar coins.
Dividend Stocks

3 Compelling Reasons to Delay Taking CPP Benefits Until Age 70

You don't need to take CPP early if you are receiving large dividend payments from Fortis Inc (TSX:FTS) stock.

Read more »

A worker overlooks an oil refinery plant.
Dividend Stocks

Better Dividend Stock: TC Energy vs. Enbridge

TC Energy and Enbridge have enjoyed big rallies in 2024. Is one stock still cheap?

Read more »

Concept of multiple streams of income
Dividend Stocks

Got $10,000? Buy This Dividend Stock for $4,992.40 in Total Passive Income

Want almost $5,000 in annual passive income? Then you need a company bound for even more growth, with a dividend…

Read more »