Many investors rely on dividends stocks to provide extra income.
Here are the reasons why I think Fortis Inc. (TSX:FTS) and Inter Pipeline Ltd. (TSX:IPL) are solid picks right now.
Fortis
Fortis is a natural gas distribution and electricity-generation company based out of eastern Canada with assets located across the country as well as in the Caribbean and the United States.
The company has historically grown through a mix of acquisitions and organic developments. Two years ago Fortis spent US$4.5 billion to purchase Arizona-based UNS Energy. Last year the company completed an expansion at its hydroelectric facility in British Columbia.
These two assets helped drive 2015 earnings to a record $589 million, or $2.11 per share.
Integrating new companies can be a challenge, but Fortis appears to have a knack for pulling of big acquisitions, and the latest deal is a whopper.
Fortis is spending US$11.3 billion to acquire ITC Holdings Corp., the largest independent pure-play transmission company in the United States. The stock initially pulled back on the announcement, but investors are feeling more comfortable with the deal and the shares have recovered.
Fortis gets nearly all of its revenue from regulated assets. That means cash flow should be predictable and reliable, which tends to be a good thing for dividend fans. In fact, the company has increased the distribution every year for more than four decades and plans to hike the payout by 6% per year through 2020.
Inter Pipeline
Inter Pipeline took a hit last year as investors bailed out of any name connected to the energy sector. In the case of Inter Pipeline, the sell-off was way overdone, and bargain hunters have recently piled back into the stock.
Inter Pipeline transports 15% of western Canada’s conventional oil output and 35% of oil sands production. The company also has a growing liquids storage business in Europe.
The conventional oil group is holding up well as strength in the Viking play offsets weakness in other areas. On the oil sands side, throughput remains strong despite the downturn in the sector. Inter Pipeline completed two major oil sands infrastructure projects in early 2015, and those assets helped drive overall Q4 funds from operations up 32% from the previous year.
Growth is occurring in the European operations through new acquisitions and improved storage demand. Utilization rates hit 97% in Q4, and that helped push funds from operations in the division up 79% year over year.
The company recently increased the monthly dividend by more than 6% to 13 cents per share. That’s good for a 6% yield if you buy the stock today.
The shares have already bounced 30% off the January low, but more upside is still possible on a broader recovery in oil prices. Until that happens, investors collect a solid payout while they wait for better days in the energy sector.
