The next time you turn on the lights or put the kettle on, take a moment and think about the utility company that is powering your home.
Utilities are considered some of the most boring stocks to invest in. Their growth is dependent on the population, there are few competitors, and rates are, for the most part, regulated. Yawn.
Fortis Inc. (TSX:FTS) is one of those boring utility companies, but it is anything but boring; in fact, the company represents one of the best ways to grow your portfolio and diversify into a segment that most investors would just bypass.
Here’s a look at Fortis and why you should add the company to your portfolio.
Fortis keeps the lights on and keeps shareholders happy
With over three million customers across both the U.S. and Canada, Fortis is the largest utility in the country and one of the largest on the continent. Its portfolio spans regulated electric and gas facilities and provides the necessary energy-related infrastructure.
One of the reasons why utilities are typically considered boring is because of the lack of growth options. The company provides an essential service, either through the generation or delivery of the utility for what is typically a set, regulated cost. Those regulated costs maintain a balance that ensures the utility makes enough to remain in business while consumers pay what they can afford.
Growth comes organically from population growth or from replacing facilities that reach the end-of-life stage with newer, more efficient facilities. In either case, that growth is something that can take a generation or more to materialize. Again, yawn.
So where does Fortis stray from the stereotype of the boring utility?
Firstly, Fortis is a growth machine. The company had assets of under $400 million 30 years ago. Today the company is one of the biggest on the continent with just shy of $30 billion in assets. Some of this growth comes from some fairly smart acquisitions that not only strengthened Fortis’s foothold in key markets, but also allowed the company to expand into new markets.
One such example is the recently announced US$11.3 billion deal that Fortis made with ITC Holdings Corp. ITC is a pure-play transmission company that complements Fortis’s own generating facilities. The deal will also introduce Fortis into eight states the company previously had no access to. When the deal is finalized later this year, Fortis will emerge as a massive $42 billion utility.
The second point to note about Fortis is the buy-and-forget appeal of this stock. Buy-and-forget stocks are true gems. They have the growth prospects and, at times, dividend income that investors want, and the stock is stable enough to operate on autopilot in your portfolio.
Fortis fits that description perfectly. The company has not only grown incredibly over the past few years, but it has provided a dividend to shareholders that has increased every year over the past four decades. The company pays a quarterly dividend of $0.38 per share, which–given the current stock price of just under $43–results in a yield of 3.50%. In terms of growth, the stock is up by 15% in the past year and up by over 40% in the past five years.
In my opinion, Fortis is a key asset for any portfolio. The growth the company has undergone as well as the dividend-income possibilities over the long term elevate this utility far above any other.