While there are many different investment strategies, the one that has repeatedly rewarded investors is a focus on strong, secure businesses with wide moats and histories of returning income to investors. And while there are many companies that fit this bill, there are few quite as good as Fortis Inc. (TSX:FTS) for putting a portfolio into overdrive.
And what’s so incredible is that we’re talking about a utility stock. They’re supposed to be boring; yet Fortis is anything but boring.
Through a string of really large and lucrative acquisitions, Fortis has been able to grow into one of the largest 25 utilities across the entire continent with $28 billion in assets and $6.7 in yearly revenue. And it doesn’t appear to be slowing down.
In 2013 it bought Central Hudson for US$1.5 billion, which sells power to residents north of New York City and south of Albany. In 2014 it bought UNS Energy for US$4.5 billion, which provided energy to Arizona. As you can see, Fortis has acquired assets around the United States and bolstered its dominant position in Canada to amass over three million paying customers.
Not wanting to stop there, Fortis now is working on acquiring ITC Holdings Corp. for US$11.3 billion, its largest acquisition yet. It is the largest pure-play transmission company in the United States. It has high-voltage transmission facilities in Kansas, Illinois, Oklahoma, Missouri, Iowa, Minnesota, and Michigan with 15,600 total miles of transmission line.
But here’s the real exciting part: Fortis excels at integrating those acquisitions into the business, so it results in a serious boost in earnings. When Fortis first started buying other electric operations in 2004, earnings grew by an average 6.9% each year. Even the ITC Holdings acquisition is supposed to provide a 5% accretion to earnings in the first year. The company buys energy providers and puts them in a position to seriously shine.
And if you add in the fact that the bulk of its assets are regulated, you’re left with a company that isn’t too worried about price fluctuations, allowing it to offer outstanding returns for its investors.
One of the ways it does that is through its incredibly lucrative dividend. It currently distributes $0.38/share per quarter, which is a 3.47% yield. That alone is nice, but Fortis wants to continue growing the dividend.
Management wants to increase the dividend by 6% every year between now and 2020. In September 2015 they hiked it by 10.3%, so Fortis is obviously serious about returning as much money to investors as it can. That 6% increase shouldn’t be hard to obtain, especially since the ITC Holdings acquisition will provide the 5% accretion to earnings.
Historically, Fortis hasn’t disappointed either. It has increased the dividend consistently over the past 40 years. So if Fortis plans to increase the dividend, it’s likely going to happen.
All in all, Fortis is a stock that should be boring, but it has instead taken the route of aggressive acquisition-driven growth. It buys up smart assets and integrates them seamlessly into the business, making it possible to return growing amounts of income to their investors. I say take advantage of this great company and buy now.
