Should Income Investors Buy Fortis Inc.?

Fortis Inc. (TSX:FTS) offers a stellar track record of dividend growth, but the company has changed a lot in the past two years, and investors are wondering if the good times will continue.

Let’s take a look at the current situation to see if Fortis deserves to be in your portfolio.


Fortis delivered record net income of $589 million, or $2.11 per share, in 2015. That was $195 million, or $0.36 per share, higher than 2014.

The growth came from a number of business additions including the US$4.5 billion acquisition of Arizona-based UNS Energy and the expansion of the company’s Waneta hydroelectric facility in British Columbia.

The strength of the U.S. dollar against the loonie also had an impact. In fact, every $0.05 gain in the currency spread adds about $0.04 cents in earnings on an annualized basis.

Big deals

Earning growth is expected to continue on the back of a HUGE new purchase.

The UNS Energy deal was big, but Fortis is now swinging for the fence with its recent announcement of the US$11.3 billion acquisition of ITC Holdings Corp., the largest independent pure-play transmission company in the United States.

The market initially reacted negatively on the announcement because the deal includes the assumption of US$4.4 billion in debt. Fortis says the financing of the ITC purchase has been set up in a way that allows the company to maintain its investment-grade credit rating. This includes a sale of about 20% of ITC to minority investors.

The purchase is expected to close in late 2016, so investors should start to see the benefits in the 2017 numbers. Management expects a 5% accretion to earnings in in the first full year after the deal closes.

Dividend growth

Fortis has increased its dividend every year for more than four decades and plans to boost the distribution by 6% per year through 2020.

Should you buy the stock?

The company offers growing dividend payments supported by revenue streams that are generated almost entirely from regulated assets. This means cash flow should be both predictable and reliable.

Fortis was very successful at integrating the UNS deal, so there is a good chance the ITC purchase will work out.

If you want an income pick that you can simply buy and forget about for decades, Fortis is still a solid choice.

Just released! One top stock for 2016 and beyond

Exports of liquefied natural gas could be one of the best growth opportunities out there for long-term investors. And, we think we’ve identified the Canadian company to invest in. It’s a global company with operations across nearly 20 countries and 70 locations. We like it so much, we’ve named it as 1 Top Stock for 2016 and Beyond. To find out why, click here now to learn how to access your FREE copy today!

Fool contributor Andrew Walker has no position in any stocks mentioned.

I consent to receiving information from The Motley Fool via email, direct mail, and occasional special offer phone calls. I understand I can unsubscribe from these updates at any time. Please read the Privacy Statement and Terms of Service for more information.