It’s the middle of RRSP season here in Canada, and investors are looking for new picks to help them meet their retirement goals.
Fortis Inc. (TSX:FTS) is one option that should be on your radar.
The company isn’t a name that gets bounced around the water cooler very often, and many investors simply ignore mid-cap utility businesses.
People just don’t get excited about natural gas distribution and electricity generation companies. When they do, it is the larger utilities in the space that tend to get most of the coverage from analysts and the media.
But things are starting to change.
With market volatility going off the charts, many Canadian investors are now seeking safe and reliable stocks for their new retirement investments. Boring is suddenly in and, as you are about to see, it can also be very profitable.
Here’s why Fortis deserves a spot in your portfolio.
1. Strong earnings
Fortis reported Q3 2015 adjusted earnings of $145 million, or $0.52 per share, up significantly from $67 million, or $0.31 per share, in the same period in 2014.
The growth came from several segments of the business, including stronger results from existing assets in Alberta and British Columbia, as well as new revenue generated from a big acquisition in the U.S. and the completion of a hydro-electric expansion in British Columbia.
2. Great assets
Fortis gets 96% of its revenue from regulated utilities, which means cash flow and earnings should be both predictable and reliable. This is great for investors who have a long-term horizon because they know they can count on a stable dividend payout and can reinvest those distributions to buy more shares.
Fortis is benefiting from rate-based growth across all areas of the business. In fact, the company expects a solid compound annual growth rate (CAGR) of about 4.5% through 2020.
3. Dividend growth
Fortis has increased its dividend every year for more than four decades. That’s a great track record, and investors should see the strong trend continue. Fortis recently hiked the payout by 10% and expects to deliver 6% annual growth in the dividend over the next five years.
The current quarterly distribution of $0.375 per share yields about 3.9%.
4. U.S. exposure
Fortis spent $4 billion in 2014 to acquire Arizona-based UNS Energy. The deal significantly increased the company’s footprint in the U.S., and that is paying off.
Every U.S. dollar of earnings currently translates into more than CAD$1.40. With the addition of UNS Energy, Fortis now gets more than 40% of its revenue from U.S.-based assets.
In Q3 2015 UNS Energy added a full $0.13 per share to earnings compared with the same period in the previous year.
5. Strong history of gains
A $10,000 investment in Fortis 20 years ago would now be worth about $105,000 with the dividends reinvested. Past performance is never a guarantee of future gains, but it can be a pretty good guide for investors who are looking for a top pick for their RRSP.