Fortis Inc.’s Latest Acquisition Confirms Why it Should Be a Holding in Every Portfolio

Utility owner Fortis Inc. (TSX:FTS) continues to go from strength to strength, and its latest planned acquisition highlights why it should be a core holding in every portfolio.

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The Motley Fool

Canada’s largest utility owner Fortis Inc. (TSX:FTS) remains focused on building its solid financial and operational success. Much of this success has come from its ability to acquire quality utility businesses as part of its strategy of expanding its business to ensure sustainable, profitable growth. The recent announcement of another pending deal highlights why investors should hold Fortis as a core holding in their portfolios. 

Now what?

In recent years Fortis has completed a number of acquisitions that have allowed it to grow its operations in both Canada and the U.S. to become one of the largest utility owners in North America. These acquisitions have been a key reason for its ability to continue growing its net earnings, which, with a five-year compound annual growth rate of just over 2%, have allowed it to reward investors with regular dividend hikes.

In fact, Fortis has hiked its dividend every year for the last 42 years to give it a sustainable and juicy 4% yield, and there are signs that this impressive rate of growth can only continue.

You see, Fortis recently announced that is has made a friendly offer to buy U.S. electricity transmission company ITC Holdings Corp. (NYSE:ITC) for US$11.3 billion.

ITC is the largest pure-play electric transmission company in the United States. Over the last three years it has experienced strong growth. The successful completion of the deal will add a further eight U.S. states to its existing U.S. operations and add a new growth platform to Fortis’s existing business.

It will also transform Fortis into one of the top 15 North American public utilities by value. The significant boost in its exposure to the U.S. will allow it to take further advantage of the U.S. economic recovery.

When this is coupled with Fortis gaining a significant portion of its revenue from regulated utilities businesses, which means they are effectively locked in, along with the wide economic moat possessed by utilities, its long-term earnings growth is virtually guaranteed. This means that it can continue to keep rewarding investors through further dividend hikes and achieve its stated target of 6% annual dividend growth over the next four years. 

So what?

The latest acquisition will be transformative for Fortis, positioning it as one of the largest utilities in North America and enhancing its exposure to the rapidly growing U.S. utilities market. More importantly, it will allow Fortis to continue rewarding its shareholders through further regular dividend hikes, giving them a regularly growing income stream.

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 Matt Smith has no position in any stocks mentioned.

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